Bank of England governor Mervyn King has sounded alarm bells by claiming this could be the worst the UK has ever seen.
King, who was speaking to Sky News, said the financial crisis is the most serious since the 1930’s and possibly ever.
He said: “We’re having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy.”
Kings comment come after the Bank of England introduced a further tranche of £75bn into its quantitative easing programme, bringing the total the bank has pumped into the economy to £275bn.
King said that changes in the past three months meant a policy response was needed and that the amount of money in the economy was not growing quickly enough. He also refused to rule out a further bout of QE.
He said: “The deterioration in the outlook has made it more likely that inflation will undershoot the 2 per cent target in the medium term.
In an interview with ITV, King also said that inflation is likely to reach 5 per cent next month.
He said: “The number for inflation that we’ll see published in two weeks’ time is likely to be over 5 per cent. But that, we think, is the peak.”
“We are past the worst. And from now on, we should be in a position where slowly but gradually living standards, real take-home pay, will be able to pick up. That’s the world we want to get back to,” King said.