Bank of England's Mervyn King says UK only just started on recovery road

Bank of England projections for GDP based on market interest rate expectations and £200bn of asset purchases. The fan chart depicts the probability of various outcomes for GDP growth. Bank of England's projection for CPI inflation based on market interest rate expectations and £200bn of asset purchases. The fan chart depicts the probability of various outcomes for CPI inflation in the future.

Bank of England's Mervyn King says UK only just started on recovery road
Bank of England Governor Mervyn King said he has an open mind on whether to inject more money into the economy, as the UK has only 'just started' along the road to recovery.

Mr King said today that the Bank's Monetary Policy Committee has an 'open mind' on whether to add to the £200bn of new money pumped into the economy, as its latest quarterly Inflation Report delivered higher forecasts for growth and inflation.

"We have a completely open mind as to whether to do more," Mr King told a press conference where he outlined the new forecasts, which see the economy returning to growth by the beginning of next year and then expanding at a 3.75pc pace by the end of 2011 - faster than its projection in August.

The Bank also expects inflation to rise above its 2pc target in the next few months before heading back down to 1.6pc within two years.

The higher growth and inflation forecasts come amid signs that Britain is emerging from its deepest recession since the 1930s. The Bank said today that it expects figures from the Office for National Statistics that last month showed the economy was still mired in recession in the third quarter to be revised upwards.

Economists reckon that the Bank's new forecasts don't signal that interest rates will be raised from their record low level of 0.5pc anytime soon. The Bank slashed rates to historic lows at the depth of the financial crisis last autumn, and has also pumped in £200bn of new money into the economy in an unprecedented policy known as quantitative easing (QE).

Mr King told a press conference that commentators had been mistaken in assuming that the policy of QE is now over.

“Any monetary stimulus is likely to face headwinds," said Mr King. "That is not to say quantitative easing is not working - it is - but it means we’ve had to put more in than would have been necessary if the banking sector was stronger.”

Sterling fell almost a cent against the dollar to $1.6650 and weakned against the euro too. Prices for government bonds rose.

"In short, it’s too soon to rule out further monetary policy action," said Jonathan Loynes, an economist at Capital Economics. "At the very least, any tightening looks a long way off."


http://www.telegraph.co.uk/finance/financetopics/recession/6544674/Bank-of-Englands-Mervyn-King-says-UK-only-just-started-on-recovery-road.html