Bank's Fisher warns road to recovery will be tough

Hugo Duncan
12 Jun 2009

Bank of England markets director Paul Fisher today warned that a lack of bank lending could thwart the UK's escape from recession.

"Although it would be very nice to say the worst is over, we should not be complacent. There are likely to be bumps in the road ahead, with many twists and turns," he said.

"If the banking sector cannot lend enough, then economic growth could be restrained significantly...It is the state of the banking sector which could do most damage to the potential growth rate."

Alistair Darling also warned that the economy could be held back by soaring oil prices.

The comments from the Bank and the Treasury came amid signs that the recession is coming to an end. Output has been in decline for a year, from a slight contraction in the second quarter last year to a vicious slump of 1.9% in the first quarter this year. The more optimistic forecasters reckon there will be growth in the current second quarter but others have pencilled in the third or fourth quarter.

Fisher said: "The general picture is that output will probably be lower in the second quarter of 2009 than in the first, and the economy as a whole should move back to positive annual growth over the next year or so."

He warned that a rise in household saving and further shocks to the global economy also pose a threat to the recovery.

"In the long run a higher UK savings rate and some household balance sheet adjustment would be a good thing, but in the short run a sharp move higher in the savings rate might slow the recovery," said Fisher.

"The domestic and global economies remain vulnerable to further shocks, especially given the low levels of consumer and business confidence."

He was the third member of the Bank to speak out this week. Andrew Sentance said there are signs the recession is "bottoming out" but Paul Tucker warned the recovery "might end up being anaemic, at best".