Britain could be set for a quick economic recovery, according to Mervyn King, the governor of the Bank of England. Then again it might not.
In the classic tradition of the two-handed economist, the governor gave several reasons why the economy could rebound. He then countered with other factors which could undermine growth.
Speaking at the launch of the quarterly Inflation Report (PDF) he pointed to three factors suggesting a strong rebound: “an unprecedented policy stimulus”, “the substantial depreciation in sterling” and “the stock cycle”.
However, on the negative side he pointed to the damaged balance sheets of financial institutions. He said: “Correcting those imbalances will require significant and persistent changes in the flow of spending and, in the banking sector, actions to reduce and leverage and raise capital. As a result, although the measures taken by governments to stabilise their banking systems have been truly extraordinary in scale and scope, 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.”
King said the interplay between the negative and positive factors would determine the robustness of the recovery.
On the Bank’s central projection the economy will return to economic growth towards the end of this year. But King said it could be earlier or later than that.
Britain ‘set for weak recovery’