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Recession could end mid-2009, says New Star’s Simon Ward

New Star economist Simon Ward has predicted that the recession could be abated within six months if the Government makes policy changes.

Ward says: “Recent monetary trends are consistent with the recession continuing until mid-2009 but a recovery is still possible later in the year if policy changes to emphasise direct measures to lift money and credit growth.”

But Ward warns that further Bank rate cuts and sterling depreciation are likely to provide little stimulus and may actually prove counterproductive if they serve to accelerate foreign withdrawals from the banking system.

He adds: “Foreigners cut their net sterling lending to UK banks by a further £12bn in November after a £36bn reduction in September and October, according to the latest Bank of England monetary statistics.

“The withdrawal of foreign funding may have contributed to the further tightening of banks’ lending standards over the last three months.”

The stock of foreign net sterling lending to banks stood at £152 billion at the end of November. Ward says this implies the potential for a further significant outflow.

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