King harbours doubts over recovery

Bank of England Governor Mervyn King says a sustained UK recovery is still uncertain despite the economy's recent growth.

Mr King told the Treasury Select Committee yesterday that a 1.1 per cent output rise between April and June was "encouraging" but added that a gradual improvement in credit conditions "seems to have come to a halt".

He said: "The wider economic problems around the world underline the fact that we cannot be confident that the recovery in demand, output and employment here in the UK will be sustained."

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The Governor stressed that there was a "considerable distance to travel" before interest rates – still at a record low 0.5 per cent – were back at typical levels. The Bank's rate-setting committee could even increase efforts to boost the money supply.

"The debate is about the appropriate degree of stimulus, not about applying the brakes," he said.

Pressed by committee chairman Andrew Tyrie on whether Chancellor George Osborne's emergency Budget increased the chances of a further slump, the Governor said: "I don't think it made a significant difference to whether we get what is technically known as a 'double-dip' recession."

He said inflation would remain high throughout most of 2011 in a further blow to households facing rising costs.

The Bank's Consumer Price Index would probably be above the Government's two per cent target for much of next year, he said.