‘It now seems likely that the UK economy is entering a recession’, those were the words of the Bank of England’s governor Mervyn King to the CBI in Leeds yesterday, confirming Brits’ worst fears.

According to King, earlier this month the banking system that the UK was told to have faith in came the closest it has been to collapse since the beginning of the First World War.

The news of recession has sent the pound plummeting against the dollar with the largest drop in one day since ‘Black Wednesday’ in 1992. However, the UK economy has now turned a corner and it is only a matter of time until the Government’s £37billion bank recapiltalisation starts to filter through the system, King said.

During his speech, Mr King made it clear that the Government’s action had come in just the nick of time as the funding that was acting as a ‘sticking plaster’ started to dry up between October 6 and 7.

Nevertheless, according to King, the recapitalisation moves will “come to be seen as the moment in the banking crisis of the past year when we turned the corner”. And, on another positive note, King hinted at a further Bank rate cut that may be required due to inflationary pressures.

The Bank of England made an emergency rate cut to 4.5 per cent earlier this month, however, according to Moneyfacts.co.uk, more than three quarters of mortgage lenders have yet to pass on the rate cut to their customers.

Commenting, mortgage expert at Moneyfacts.co.uk, Darren Cook said: “With more base rate cuts on the horizon, which in part are intended to reduce the burden of household finances, we could find ourselves in situation where future MPC decisions on a rate cut will have little or no bearing on the majority of current household’s mortgage outgoings and could ultimately result in an increase in repossessions.”

In defence of the Government’s decision to bail out the UK banks that have come under fire for their irresponsible actions in the past, King said: “The actions taken were not designed to save banks as such, but to protect the rest of the economy from the banks.”

Commenting on the excitement seen in the banking sector over the past few months, King concluded: “I have said many times that successful Monetary Policy would appear rather boring. So let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing. The long march back to boredom and stability starts tonight in Leeds.”

© Fair Investment Company Ltd