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UK recovery to be slow

The reluctance of banks to resume lending is hampering the UK’s recovery from recession, the Bank of England has warned.

The painful process of repairing the finances of the sector increased the chances of a “relatively slow and protracted” recovery, bank governor Mervyn King said.

“It is likely that the supply of credit will continue to be restricted for some while, with banks being risk averse and aiming to raise capital ratios,” he said.

The warning came as the bank predicted a deeper recession than in its last report in February, due to the worse than expected 1.9% fall in output during the first quarter of 2009.

It now forecasts that the annual decline in UK output could hit 4.5% at the peak of the recession this summer.

The governor said the pound’s weakness, the impact of record low interest rates, government spending, and firms working through stockpiles offered hopes of recovery.

Sarah Green, Regional Director of CBI North East said: “It is clear from this report that the economic outlook remains highly uncertain and we can’t bank on a swift route out of recession.

“Although there are signs that the pace of decline is starting to moderate, the big problem for many companies continues to be access to credit. From what businesses are telling us, the credit situation might not be getting any worse, but it isn’t getting much better either.

“However, there are some reasons to hope that we will see some stabilising forces starting to kick in over the next six months, including the massive monetary boost from successive rate cuts and quantitative easing.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .