The UK has an odds-on chance of suffering an even deeper recession than first feared, the Bank of England’s deputy Governor warned today.
The Bank last week predicted a near 4% year-on-year fall in output as the credit crunch tightens its grip on the wider economy.
But Charles Bean told an audience in Birmingham there was “roughly a three in four” chance of growth even weaker than the Bank’s already-gloomy central projections.
Lingering woes in the banking sector and nations shunning free trade in favour of protecting their own industries could hinder a recovery, according to Mr Bean.
He told the National Farmers Union: ‘It is possible that efforts to restore the banking system may take longer to bear fruit, and that the adoption of protectionist measures abroad as the downturn deepens may slow the recovery.’
Despite the “bleak” short-term prospects, the deputy Governor said interest rate cuts to a record low of 1%, the sharp fall in the value of the pound and support for the banking sector gave reason for hope in the second half of 2009.
He added that policymakers were working on measures which would help protect the economy by placing tougher restrictions on banks’ balance sheets.
“This could be, for instance, by making banks build up extra capital buffers or reserves in the good times, which can then be drawn on when times turn bad so obviating the need to cut back sharply on their lending.
“In this way, the real economy can be protected from the financial excesses that seem prone to recur.”
Lack of imagination
The deputy Governor admitted that a “failure of imagination” had been in part to blame for the wider economic carnage caused by a debt-driven boom in property and asset prices.
Meanwhile, Gordon Brown’s spokesman has sought to calm speculation about the future of the LloydsTSB banking group.
He said despite rumours, the Government was giving “no active consideration to nationalising Lloyds”.
The denial comes after Lloyds announced it was facing bigger losses than expected following its takeover of Halifax Bank of Scotland.
© Press Association 2009