Lord Turner likens Britain's woes to Japan's 'lost decade'

Bank of England contender Lord Turner laid bare the extent of the challenge facing Sir Mervyn King's eventual successor last night, as he warned Britain's economic woes "could extend for many years".

The Financial Services Authority (FSA) chairman – who is battling deputy governor Paul Tucker for Threadneedle Street's top job – struck a desperately downbeat tone in his final speech after four years leading the City watchdog.

Drawing parallels with Japan's "lost decade", he told a Mansion House audience the financial crisis had left the UK in a "hugely difficult position" as attempts to work off the excess borrowing of a credit boom hinder recovery.

"Post-crisis deleveraging is very, very difficult to manage – and that's the lesson policy makers and economists have increasingly learned in the last three years. And if we do not carefully design policy in response, the deflationary impact on economic growth could extend for many years ahead," Lord Turner, inset, warned.

The FSA boss also hinted he may be ready to throw yet more firepower at the UK economy as Governor with a warning that the effectiveness of quantitative easing could wane over time. He backed the Bank's £80bn Funding for Lending Scheme but added: "We need to be ready if these measures prove insufficient to consider further policy innovations".

Lord Turner, who has admitted he was wrong in pushing for the UK to join the euro a decade ago, warned the eurozone "cannot survive" without further integration.