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Economic recovery still a long way off, Bank of England chief warns
By James Kirkup, Political Correspondent
Last Updated: 6:55pm BST 25/08/2008

The world economy has a "long way to go" before it recovers from the worst crisis since the 1970s, the deputy governor of the Bank of England has warned.


Charles Bean said that there is little prospect of an economic recovery until well into next year, meaning households' income will remain under severe pressure for months to come.

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Professor Bean's bleak assessment of the economic outlook follows figures last week that confirmed that UK economic growth has ground to a halt after 16 years of unbroken expansion.

The end of economic growth has strengthened predictions that Britain will dip into a full recession this year.

Prof Bean, speaking to the BBC in a central bankers' conference in Wyoming, did not explicitly mention a recession, but he made clear that the tough economic times will continue.

"We've got our fingers crossed that things will improve. But there is the recognition that there is still a long way to go yet," he said. "It looks like it will drag on for some considerable time further yet."

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Oil prices have tripled in two years, helping push up inflation around the world.

"It's fair to say that if you look at the shocks impinging on us this is at least as challenging a time as back in the 1970s," said Prof Bean. "Some people have said it's as big a financial shock as the Great Depression and as far as the oil shock goes the rise in oil prices is in the same order of magnitude that we had to deal in the 1970s."

Soaring energy prices helped push UK inflation up to 4.4 per cent in July, the highest since records began in 1997 and more than twice the Bank of England's target of 2 per cent.

High inflation and failing growth has raised fears of "stagflation" in the British economy, and the need to curb inflation without further smothering economic activity has left the Bank of England's Monetary Policy Committee split over whether to raise or cut interest rates.

Prof Bean suggested that the dilemma will ease as prices gradually fall from their current peaks.

He said: "On the assumption commodity prices remain stable and if anything fall back, then inflation should drop back as we go through next year.

"One would hope that the conditions in credit markets should gradually start to improve and those two factors will help to ensure growth will start to pick up as we go through next year.

But he added: "It's going to be a tricky period. Household real income is very low. That will make it difficult for households and there are difficult social issues that will arise."

The economic downturn is undermining Gordon Brown's Government, which has come under fresh attack from a business leader over tax.

Miles Templeman, the director of the Institute of Directors, said that corporate taxes are "unacceptably high" and warned that business has lost faith in Labour.

"The government, in the last five years particularly, has not really embraced the business agenda thoroughly enough," said Mr Templeman. "The Brown premiership has carried on that trend. And then you've got all the economic pressures and some of the tax cock-ups as well."