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The Bank of England today declared the UK recession over a year to the day after the collapse of Lehman Brothers sent the global economy into freefall.
Governor Mervyn King said: “Following a precipitate fall in economic activity at the end of last year and the start of this, there are now signs that growth has resumed in the third quarter.”
But he warned the “strength and sustainability of the recovery is highly uncertain”.
The FTSE 100 was 38.82 points higher at 5057.67, having having rallied from a post-Lehman low of 3512 which it slumped to in March.
It is still below the 5416 it closed at the session before Lehman went under.
King told MPs on the Treasury Select Committee: “The consequences of the financial crisis, sparked by the failure of Lehman Brothers exactly a year ago today, will be pervasive and long-lasting. That is not to say that growth cannot resume. In some countries it already has, and in others it will. But there is a long, hard road ahead.”
The UK was already in recession when Lehman went bankrupt on 15 September 2008, but the pace of decline accelerated dramatically as the world was gripped by the worst financial crisis since the 1920s.
France, Germany and Japan have since emerged from recession but the UK is languishing behind.
King warned any recovery will be “slow and protracted”.
He said: “Most financial institutions around the world are focused on recuperation, giving them a powerful incentive to be cautious about extending new credit to households and businesses. That is acting as a direct drag on demand. But the crisis has also caused households and companies around the world to want to strengthen their own financial positions and that has acted as a further brake on spending. Those factors will be important influences on the UK economy for the foreseeable future. Nevertheless, the decline in activity has moderated and growth seems set to resume.”
His comments came amid warnings that the lessons of Lehman have not been learned — as illustrated by the return of big bonuses — and serious reform of the financial system is needed.
Tony Dolphin, senior economist at the Institute for Public Policy Research, said: “Alarm bells should be ringing with the early signs of a back-to-business attitude in the City and little evidence that policy makers are taking measures to ensure the next economic recovery is better balanced than the last one.”
The mood in London and New York today was in stark contrast to a year ago when the FTSE 100 1index crashed more than 200 points or nearly 4% on the day of Lehman's downfall.
Volatility warning from Mervyn King
Mervyn King today warned the path of inflation will be "volatile" after it fell less than expected again last month.
The Consumer Prices Index fell from 1.8% in July to 1.6% in August - its lowest since January 2005 but above the 1.4% forecast in the City.
King, Governor of the Bank of England, predicted six months of volatility with inflation initially falling further below the 2% target before rising temporarily when last year's emergency VAT cut is reversed.
Further out, he forecast inflation to drop back below 2%, suggesting yet more money will be printed by the Bank under its quantitative easing programme.
Vicky Redwood of Capital Economics said: "The big picture is still that inflation is set to fall to very low levels next year and beyond."
Reader views (16)
Cut taxes. No brainer.
Cut oxygen thieves in "Broon Service"\.
Cut useless spending... start by firing anything wif Nu labor badge...
Freeze all civil service hiring..
Sack 50% of all NHS managers and hire one nurse for each sacking...
Job done!
- James Macleod Ritchie, Oyster Bay Cove
Money printing and inflation is not the answer. Which would you rather live through: Japan's "lost decade"? or Zimbabwe's inflationary ruin?
- Zady, London
Phew! Thanks heavens for that. Now we can all get on with what we like doing best which is buying and selling houses to each other.
- Cyrjames, Berwick UK
I can't believe you all fall for the infamous KP comment, he is winding you all up and doing a very god job at it.
- Dc, London
Good,time to cut the high taxation we the British public have to pay.Tax on wages,council tax,vat on everything we buy,tax on gas and electricity,tax on interest earned,tax on tobacco replacement therapy(goverment serious about helping people to quit,yea right),mot tax,death tax,next we will be taxed for useing are toilets to much.
- David, london
I think there is too much negativity going on.Things are bad but I am sure that all this money printing will eventually inflate us out of our debt. Don't forget that houses used to cost £400 once! If commodity prices increase and food prices increase, wages will also increase and suddenly the debt will seem a lot more manageable. From now on, trillion is the new billion (just knock a '0' off the nations debt and lets start again! - it's only numbers, none of it's real!)
- Dave Stanton, Brighton
Can anyone tell me on which planet this place 'Luton' where (seemingly brainless) Keith Price-less lives? Could it by chance be Never Never Land? It certainly isn't Planet Earth, where I live, but then I don't get visits from Tinkerbell Brown either. Fortunately.
- Minority Working Person, London/England
Lot's of anti Labour posts here - maybe they can remind the younger readers of the 3 major recessions in 18 years that the Conservative party took us into - you know, one every six years rather than one every 12?
Maybe you can remind them of the 3 million unemployed (out of a population 10 million less) in the 1980's, compared to 2.4 million now? (while the recession is coming to an end)
Maybe you can remind them of the privatisation's they started of public services ridiculously cheaply of which only British Telecom has been a success? (admittedly copied by this government - hey they all love quick money!)
Or maybe you can let them know of the total devastation of large parts of the country/nhs/education system all the while giving tax cuts to those who dont actually need it?
- Jason, London
Can anyone tell me on which planet this place 'Luton' that (seemingly brainless) Keith Price-less lives. Could it by chence be Never Never Land? It certainly isn't Plaanet Earth, where I live, but then I don't get visits from Tinkerbell Brown either. Fortunately.
- Minority Working Person, London/England
Well done Gordon for spending so much before the bust came ..well he did abolish it after all... that when it happened we were is such a bad position to ride it. Then he spends even more money to get out of it, resulting in a debt which will be around our grand children's necks for year. Yes well done Gordon
- Paul, London
I am hearing rumours of another manufactured financial crisis, to be thrown at us at the end of September. This time, governments will not be able to throw any money at the banks, so it will be very bad indeed.
- Neil, London, London UK
Keith mate - reality check:
You seem to be living on a different planet to the rest of us. On Planet Earth the news is that the UK has the deepest recession of all the G20. This is partly caused by our reliance on financial services (fine - in a globalised world all countries need to specialise and it is a lot better to specialise in finance than making cars (the French are on borrowed time in this respect)). But it is also to do with the fact the UK public finances are in freefall - Mr Brown having lived in some twilightzone where he thinks talking about prudent economic management is a reasonable substitute for actually practising it. Having said that, I'm all for developing my own version of reality (even or perhaps especially in Luton) - 12 years of a socialist government in all but name (hence surviving this long) is enough to destroy anyone's faith in reality.
- Milton-Not-Keynes, London
Not funny
- Roger, London
KP strikes again! No mention I notice of the fact that quantitative easing aka printing money has ballooned the liquidity ratio of banks which aren't lending so the funds have to go somewhere, gilts and equities and hey ho another bubble. Whilst unemployment rockets public spending is funded on further government borrowing ballooining pension deficits in the public sector this is the road to ruin. Total Disaster looms.
- Wallytrader, London
The basic lesson to be learned is that house and commercial property prices can no longer be allowed to grow out of control. Having an inflation index to guide monetary policy and the setting of interest rates, that does not take into account these prices and rents, as used in the US and preferred by Gormless Brown was a disaster waiting to happen. When I see discussion regarding the future regulation of banks and financial institutions am worried that little or no mention is made of this failing. It should be repeated ad nauseam; The root cause of this this financial disaster is that property prices had risen too far and become unsustainable.
Apart from his fateful error of removing housing cost from the inflation index to be used by The Bank of England. Gordon Brown also contributed to this disaster by introducing Buy to Let as an investment, thereby pushing up the price of housing further.
Also it should not be forgotten that opening the flood gates on immigration was yet another disaster. As it created a spike in housing demand that was not backed up by a Government programme of increased house building.
Apart from Labour's incompetence, most other politicians in the Commons do not deserve to hold public office as their exposed greed in property investments blinded them to the disaster that was looming ahead. For that reason, 'flipping' George Osborne should be barred from ever being Chancellor of The Exchequer because we need politicians that put the nation first.
- Harry H, London UK
I say well done Gordon Brown for rescuing the country from the worldwide economic recession, which has hit many other countries far harder than it has us here in the UK
- Keith Price, Luton England
