Country 'is not yet ready for interest rate rises'

In a speech to business leaders at the Confederation of British Industry's annual conference, Paul Tucker said he believes Britain is not yet ready to cope with tighter monetary policy because of "reasonably strong" headwinds.

"Earlier in the year, I had expected – half expected perhaps – that by this time in the year the Bank of England would start to withdraw the monetary stimulus we had provided to the economy," said Mr Tucker.

"That seems to me, in terms of my own personal vote, rather less likely now than it was."

The BoE has slashed interest rates to a record low of 0.5 per cent and spent 200bn of newly created cash on buying assets to boost growth – a process dubbed quantitative easing (QE).

Howard Archer, economist at IHS Global Insight, said: "Paul Tucker's comments indicate... he is certainly prepared to vote for renewed quantitative easing should the economic recovery falter further.

"And it is abundantly clear that he is not in favour of raising interest rates anytime soon."

Delegates also heard a robust defence of the banking sector from Barclays' incoming chief executive Bob Diamond, who insisted banks continue to lend but cannot be expected to grant all loan requests. "Banks are continuing to lend," he said. "Lending lies at the very heart of our business, but we have to do it in a way that's responsible."

He said lending has fallen as businesses have strengthened their balance sheets and paid down debt, but also because foreign banks have withdrawn from the market.

"But the objective can never be to fulfil 100 per cent of demand for lending because by doing that will simply sow the seeds of the next slump," he said.

Mr Diamond also urged against splitting big banks, as Business Secretary Vince Cable has advocated. He said businesses need to be able to trade across borders, as Barclays does, buying and selling in multiple locations.

"The only organisation that can help them do that is an integrated global bank."

He said banks should not receive taxpayer money and strong banks are in favour of strong regulation. "No bank should ever, ever receive taxpayer money," said Mr Diamond.

Barclays raised billions of pounds from investors in the Middle East and elsewhere to rebuild capital during the financial crisis, while rivals RBS and Lloyds both needed Government bailouts.

Antonio Horta-Osoria, head of UK operations at Spanish bank Santander, added: "Any failing bank should be allowed to fail in an orderly way, without the taxpayer having to step in."

However, the conference also heard from Ineos chief executive Jim Ratcliffe, who said lack of finance is one of the biggest barriers to companies' growth and governments and banks need to make cash available.

Dr Ratcliffe, who grew Ineos into a $40bn chemicals giant in 10 years, said its interest rate trebled and amortisation rate doubled during the recession.

"(That is) a significant penalty for the manufacturing sector and a significant reward for the financial sector," he said. "That just does not seem right.

"There is a risk that the baby of industrial growth is being washed away with the sub-prime bathwater."

The conference also heard from former Canadian Prime Minister Paul Martin, who cut the country's $42bn Canadian dollar deficit in the 1990s. He said sharp, decisive action helped Canada erase its debt and become a model of fiscal prudence.

Ian King, chief executive of defence giant BAE Systems, told the conference as well as exporting from the UK, the company has also grown by establishing 'home markets' in foreign countries.

Bank reform could take decades, claims governor

Successful reform of the banking system "will take many years, if not decades", the Governor of the Bank of England said last night.

In a speech in New York, Mervyn King said the reliance of banks on short-term debt to fund long-term, illiquid invest- ments creates incentives to take on more risk.

Mr King said: "The guiding principle of any change should be to ensure that the costs of maturity transformation – the costs of periodic financial crises – fall on those who enjoy the benefits of maturity transformation – the reduced cost of financial intermediation."

A special tax on banks might be sound, but it is impossible to calibrate the appropriate size of the levy, he said. Limits on leverage might help too, as embodied in Basel III, but these cannot be seen as a "silver bullet", he added.

"Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis.

"This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too."