King warns of the 'long hard slog' to clear Britain's debt

Governor of Bank of England's attack on 'truly extraordinary' deficit fuels tension with Chancellor

The Governor of the Bank of England, Mervyn King, has warned that the nation faces a "long hard slog" to recovery, criticised the Government for running too high a level of borrowing as the nation entered the present crisis, and called on the Chancellor to produce a "credible statement" of how he plans to get the borrowing down.

It will take "an awfully long time" to get the public finance s back under control, the Governor said. Though he praised the Chancellor's "commendably honest" Budget, he wanted to see "slightly greater ambition" in Alistair Darling's efforts to cut borrowing, and he felt that the Chancellor had so far been "not clear enough". He described the budget deficit as "truly extraordinary".

Mr King said: "There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down to levels below those envisaged in the budget."

He added that a path needed to be plotted "to return to a sustainable position in the lifetime of the next parliament". He also revealed that he had not been consulted, nor even seen, a copy of the Government's White Paper on banking regulation, to be published next week.

Mr King's outspoken remarks, given in testimony to the Treasury Select Committee and close to breaking the convention that the Bank does not become embroiled in political arguments, came as the Organisation for Economic Co-Operation and Development said that the British Government's finances were sinking into the red faster than those of any other major industrial nation.

The OECD, which comprises the world's 30 most advanced economies, said that borrowing would reach 14 per cent of GDP during this fiscal year – around £200bn, against the Chancellor's figure of £174bn.

The OECD also downgraded its projection for British growth, forecasting that the British economy would shrink by 4.3 per cent this year, with unemployment set to approach the 10 per cent mark: "The financial crisis has severely impaired the supply of credit and house prices have fallen sharply, thus restraining business and household spending."

Next year the OECD sees only stagnation in the British economy, with output flat with a "weak and flat" worldwide return to growth. Echoing Mr King, the OECD called for "a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold".

However, ministers will be more pleased with the Bank's suggestion that the worst of the recession may be over, and the hints that it seems to be in no hurry to reverse its unpredicted easing of monetary policy. Mr King said that the economy should start to see "some sort of recovery" soon. His Deputy Governor for Monetary Policy, Charlie Bean, said that the economy may now be "around the trough".

Since last Autumn, the Bank Rate has been cut from 5 to 0.5 per cent, the lowest level in the Bank's 315-year history, and £96bn of cash has been injected into the economy since March through the Bank's policy of "quantitative easing" (colloquially called printing money). A further £30bn will be spent over the next few weeks. Mr King said that he hoped to see the recession ease as we come to the end of the "destocking phase", which saw shops and other businesses adjust to lower demand by selling out of stock rather than placing new orders at the factory level or further down the supply chain, which exaggerated the downturn. Mr King also suggested that the 20 per cent fall in the pound over the past two years and the bank's injections of cash into the economy will also help.

However there are doubts about the strength of recovery. Mr King repeated his fear that many small and medium size businesses "find it hard to obtain credit from the banking system" and suggested that the Government could, it if wished, use its majority shareholdings in two of the biggest banking groups, Lloyds and Royal Bank of Scotland, to order them to increase their lending. The OECD agreed: "The financial crisis has severely impaired the supply of credit... thus restraining business and household spending."

Despite its grave pessimism about the British economy, the OECD raised its forecast for global growth, which it believes will be as high as 2.3 per cent next year, having shrunk by 2.2 per cent in 2009. The OECD's Secretary General, Angel Gurria, said: "It looks like the worst scenario has been avoided. Even if the subsequent recovery may be slow, such an outcome is a major achievement of economic policy."

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
News
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
PROMOTED VIDEO
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
Voices
Joseph Kynaston Reeves arguing with Russell Brand outside the RBS’s London offices on Friday
voicesDJ Taylor: The great tradition of St Paul and Zola reached its nadir with a worker's rant to Russell Brand
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
News
i100
News
Xander van der Burgt, at the Royal Botanic Gardens, Kew
scienceA Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick