By Natasha Brereton LONDON -(Dow Jones)- Bank of England Governor Mervyn King said Tuesday that heightened regulation can’t prevent the financial speculation that results in bank failures, and called for a serious review of the structure of the banking sector whose goal would be to eliminate institutions that are too important to fail. In a speech to business people in Scotland, King championed the idea of separating banks’ utility functions as a means of minimizing the government’s effective subsidy of risky activities and reducing the U.K.’s reliance on a small number of very big banks. Turning briefly to the economy, he noted that there was likely to be “significant” fiscal tightening in the years ahead, and stressed the need to boost broad money growth, but gave no clear indication on whether he would favor extending the bank’s bond buying policy. “The sheer creative imagination ...

By Cees Bruggemans, Chief Economist FNB

When having to make a binary decision (yes/no, whether or not to change interest rates) one is apparently well advised to, firstly, stick to the facts and, secondly, to keep things simple.

Keeping things simple preordains a view on basically two dimensions, namely the inflation forecast and the chances of getting this right, and the state of the economy (whether it is over- or underperforming).

Incidentally, these two dimensions coincide with the inflation gap and output gap dynamics of the Taylor Rule, but with somewhat different reasoning.

First, the inflation outlook. There seems to be consensus that after halving from 13.5% to 6.7% over the past year, CPI inflation has a bit more sliding to do over the coming year, reaching 5% territory in 2H2010.

That’s the good news, but it is incomplete. We want to know the chances (risk) of actually seeing

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