Governor's recession warning
Updated on 22 October 2008
The governor of the Bank of England, Mervyn King, has warned that a return to "more normal conditions" for the economy will be a "long slow haul".
In a speech to business leaders in Leeds last night, he said it was difficult to exaggerate the "severity and importance" of recent events, commenting that the last few weeks had been "too exciting".
"Successful monetary policy would appear rather boring," he said. "So let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing."
Mr King also commented that the bank bailout plan was not designed to save the banks, but to "protect the rest of the economy from the banks."
The scale of central bank liquidity support was called "unprecedented", but he said it was "sticking plaster - useful and important, but not a substitute for proper treatment".
Mr King said that the economy is still "far from the end of the road back to stability", but believes the bank bailout plan will be seen as the moment "we turned the corner".
He warned that "it now seems likely that the UK economy is entering a recession". However, he said "two pieces of good news should temper the gloom," these being the recapitalisation of the banking system and fall in oil and gas prices.
He defended the decision to increase borrowing for the bank rescue package, saying the cost of banking system "need not prove inflationary" if managed well as the borrowing has resulted in buying assets, unlike past increases in times of war.
He finished his speech saying "the long march back to boredom and stability starts tonight in Leeds."
