Economist warns of ‘dangerous situation’ for financial markets

Mr Fisher, who is the central bank’s executive director of markets and sits on the Monetary Policy Committee, also said governments had fewer options to deal with the current crisis because of their stretched public finances.

He said the eurozone crisis posed the biggest threat to Britain’s economy if it resulted in a negative shock which pushed the UK into recession and deflation. Concern about the currency bloc’s continuing debt woes and its impact on the UK economy was one of the reasons the BoE relaunched its quantitative easing asset buying programme in October with a £75bn cash injection.

The BoE’s quarterly bulletin, published yesterday, highlighted weak consumer spending as another main reason for Britain’s weak economic performance. Most analysts reckon the central bank will expand the programme again by February.

“Most people in financial markets have not lived through an episode like this before,” Mr Fisher told newswire Market News in an interview. He said that while the situation is in “some ways not as bad” in terms of market stress, it is at the same time potentially “more dangerous”.

Mr Fisher was quoted as saying that whereas in 2008, governments had more leeway and cash available to stimulate their economies and bail out banks, today that “sovereign backstop is less clear”.