Bank of England expert in 'severe recession' warning

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Adam Posen, a member of the Bank's monetary policy committee, said austerity measures in Britain and in Europe posed a serious risk.

It suggested he is in no mood to raise interest rates any time soon — unlike colleague Andrew Sentance who this month voted for a rate hike.

Shares in London and Europe edged higher after yesterday's rout which was triggered by fears over the state of the global economy and European banks.

The FTSE 100 rose 35.59 points to 4949.81 after tumbling more than 150 points to a 10-month low yesterday.

Posen said: "The economy is potentially switching between two states — a recovery, which we are now in, albeit an intially weak one, and the renewal of a severe recession.

"We are about to enter a period of fiscal austerity at home and in the euro area, our most important trading partner. We should make no mistake — this will hurt.

"If we are fortunate, our present monetary policy stance combined with the UK economy's natural tendency to recover and with sustained global growth outside of Europe will be sufficient to get the UK to the good outcome.

"I regret to say that I am not as confident, however, that we will get to that favorable situation."