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Economy is starting to recover, says BofE boss King

Sir Mervyn King yesterday said a gentle economic recovery was beginning but signalled low interest rates were set to stay in place for some time.

Speaking at a CBI Northern Ireland dinner in Belfast, the Bank of England governor also suggested that Lloyds Banking Group and Royal Bank of Scotland could be back in private hands within a relatively short period.

In addition, he outlined a number of factors affecting the sluggish pace of UK recovery, including the "deep and protracted" squeeze on take-home pay, which has constrained consumer spending and fed through into the troubles in the retail sector.

The greater amount of de-leveraging needed by UK banks meant they were less willing to lend and the ongoing crisis in the eurozone were cited as further drags on growth.

Sir Mervyn said: "Patience and a sense of realism are sometimes mistaken for fatalism.

"Our economy is recovering, more slowly than we might wish, but we are moving in the right direction.

"The Bank has not been, and will not be, inactive. Low interest rates will not be withdrawn prematurely, but we should not rely solely on general stimulus to aggregate demand."

On Lloyds and RBS he appeared hopeful that public stakes may soon be a thing of the past and added: "After all, in the United States, banks that received state support are already back in private hands."

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