BoE in bid to prevent prolonged recession

| January 21, 2009 | 0 Comments

The Bank of England’s Governor, Mervyn King, is bracing Britain for a prolonged recession and a tough year ahead as he warned it is uncertain how long it will take for the economy to begin its recovery.

Mr King was addressing the CBI in Nottingham in his first major speech of the year and said a pronounced contraction in spending and output is under way.

The priority, according to Mr King, is to kick-start lending and said the second bailout package, announced by the Government earlier this week, has not been designed to “protect the banks as such”, but “designed to protect the economy from the banks”.

Mr King blamed the crisis on years of lax lending by banks.

The banking sector is under pressure currently as concerns are mounting over the futures of RBS and Lloyds Banking Group. Both banks have seen their share price plummet this week over nationalisation fears.

Meanwhile, figures yesterday from the Office for National Statistics revealed that consumer price inflation fell in December to an annual rate of 3.1% from 4.1% in November.

The sharp fall in inflation is raising concerns over the risk of deflation.

In addition, data due to be published by the Chartered Institute of Personnel and Development and KPMG later today, is expected to show a that unemployment hit two million in November after reaching 1.86 million in October.

Official figures on Friday are set to confirm if the UK is in recession. A country is considered to be in recession when it experiences two consecutive quarters of negative output.

However, Mr King sets out to reassure by saying that measures taken by the central bank and the Government will ‘eventually stimulate a recovery‘.

In related news, Andrew Goudie, the Scottish Government’s chief economic adviser, has warned that Scotland’s economic performance is weakening.

Furthermore, Scotland’s enterprise agencies and the Federation of Small Businesses have all warned that as a result of a lack of credit, viable firms are facing serious cash-flow problems.

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