The Truth

Bank chief Mervyn King raises spectre of British recession .........

added 15/5/08

from The Times
Gary Duncan, Economics Editor, and Philip Webster, Political Editor
May 15, 2008

Britain faces two years of economic pain and could sink into recession, the Governor of the Bank of England has said in a stark warning to the nation.

Mervyn King gave notice of a further squeeze on living standards, forecasting that inflation would climb to 3.7 per cent and remain high for two years. “The nice decade is behind us,” he said.

Yet within hours of this stark assessment, Gordon Brown staked his survival on the economy. He said: “I ask, and indeed expect, to be judged by this test: our stewardship of the British economy and building a lasting prosperity by releasing untapped potential.”

Mr King said that households faced a protracted spending crunch as food and fuel bills continued to soar. He said that the severe financial strains would deepen the sharp economic downturn already taking hold and ruin chances for steep interest rate cuts to boost growth.

The Bank cut forecasts for growth sharply, predicting that this would all but grind to a halt later this year. The City said that interest rates might not be cut again at all this year.

The Governor insisted that the Bank did not expect a recession but conceded for the first time that one could not be ruled out.

His comments came as Mr Brown continued his relaunch by setting out a draft parliamentary programme for next year of 18 Bills, including direct measures to help the struggling housing market.

The Prime Minister, speaking later in Bermondsey, southeast London, insisted that Britain would “emerge from the global slowdown stronger and better, both as a country and a government”.

He put reform of public services and welfare at the heart of his legislative programme for the coming year, promising to give ordinary people more control over health-care, schools and policing.

The Times has learnt that Mr Brown was warned by one of his closest advisers against scrapping the 10p tax rate before the 2007 Budget, but he overruled the aide, saying that he better understood the politics of the issue.

David Cameron accused the Prime Minister of stealing Conservative policies. The Tory leader said that the “relaunch” proved only that the Government had “run out of road, run out of money, run out of ideas”. He dismissed the draft legislative programme as “yet another attempt to save the Prime Minister’s skin” before next week’s Crewe & Nantwich by-election, where the Conservatives are pressing to overturn a Labour majority of just over 7,000.