Tuesday, October 21, 2008

Mervyn King: A 'long march' out of recession

by Bill McBride on 10/21/2008 08:31:00 PM

From The Times: Mervyn King warns of Britain's 'long march' out of recession

Britain is on the brink of recession and faces an extended and painful economic downturn, the Governor of the Bank of England said last night. Mervyn King admitted for the first time that “it now seems likely that the economy is entering a recession”. He told families and business to prepare for a prolonged period of hardship.

“We now face a long, slow haul to restore lending to the real economy, and hence growth of our economy, to more normal conditions,” he said.

A squeeze on take-home pay, soaring living costs and the decline in consumer credit increased the risk of “a sharp and prolonged slowdown”. He said: “Over the past month, the economic news has probably been the worst in such a short period for a very considerable time.”
Here is the story from Bloomberg: King Says Bank of England Will Act as Recession Seems Likely
``The age of innocence -- when banks lent to each other unsecured for three months or longer at only a small premium to expected policy rates -- will not quickly, if ever, return,'' King said. ``I hope it is now understood that the provision of central bank liquidity, while essential to buy time, is not, and never could be, the solution to the banking crisis, nor to the problems of individual banks.''
``Not since the beginning of the First World War has our banking system been so close to collapse,'' King said.
Investors overseas may also be less willing to put their money in the U.K., King said. ``Unless they are replaced by other forms of external finance, the adjustments in the trade deficit and exchange rate will need to be larger and faster than would otherwise have occurred, implying a larger rise in domestic saving and weaker domestic spending in the short run.''
Usually when the Fed Chairman and the BofE Governor are talking recession, both countries have been in recession for some time!