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September 16, 2009

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Home » Business » Economy

Britain is recovering, says bank governor

THE British economy is slowly emerging from its deepest recession since World War II, Bank of England governor Mervyn King said yesterday, but inflation, now near a five-year low, is unlikely to be a problem soon.

"Falls in output have broadly come to an end and we are beginning to see some very small signs of positive growth," King told an influential group of lawmakers.

In the first quarter of the year, the British economy shrank by a massive 2.4 percent, followed by 0.8 percent contraction in the second.

King said the improvement has been largely due to firms de-stocking at a slower pace, a weaker pound and extraordinary measures from the Bank of England - such as slashing interest rates to a record low of 0.5 percent and buying nearly 150 billion pounds (US$249.34 billion) of financial assets from banks.

However, he stressed that the growth rebound in Britain and abroad was "very small" in comparison with the sharp fall in output that preceded.

"There is a long way to go before the level of output gets back to where it was," said King. "Growth rates don't tell the story."

Recent figures point to a stabilization in the housing market, marked improvements in consumer confidence and a resumption of growth in the manufacturing sector.

Despite signs of a modest turnaround, King appeared fairly sanguine about inflation as the recession had opened "significant spare capacity" in the economy.

King said inflation was likely to remain volatile over the next year - in the next six months, he said inflation would likely fall further below the current level before rising. Consumer price inflation fell to 1.6 percent in the year to August, its lowest level since January 2005.


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