MILLIONS of households have been warned by the Governor of the Bank of England that the financial crisis could last until the end of the decade.
Sir Mervyn King's comments came as higher UK borrowing figures put strain on the Chancellor's plans to bring down the budget deficit.
During evidence yesterday to the House of Commons Treasury Committee, he braced Britons for at least another five years of pain as he saw no sign yet of an end to the global financial woes.
Pointing out how no-one had expected the financial crisis, which began in 2007, to have lasted so long, he told MPs: "I don't think we're half-way through it.
"My estimate of how long it will take to recover is expanding all the time."
The Governor explained how he was struck by the speed at which the economic outlook was deteriorating as the eurozone crisis deepened and with conditions now worsening in previously booming areas such as Asia and other emerging markets.
He said he was "pessimistic and particularly concerned" as the problems in Europe continued without any decisive action.
Sir Mervyn also indicated there would be no more help for mortgage-holders, saying further interest rate cuts would do little to help UK recovery efforts.
He said if interest rates –which have been held at a record low of 0.5% – were reduced further, it would risk hurting building societies by squeezing their already tight interest margins.
His appearance before MPs came after official statistics showed public sector net borrowing, excluding financial interventions such as bank bailouts, was £17.9 billion in May, up from £15.2bn the previous year. City analysts had expected borrowing of £15.7bn.
The jump was driven by a plunge in income tax receipts and a rise in welfare benefits, underlying the impact of the double-dip recession on the public purse.
Some economists warned that George Osborne was already on course to overshoot significantly his full-year borrowing target of £120bn, while others said the country's prized AAA credit rating was now under threat.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The Chancellor desperately needs the economy to quickly return to growth, or else he faces suffering a significant shortfall on his public finance targets and a growing threat to the UK's AAA credit rating which is so prized by the Government."
However, the Treasury insisted it was too early in the financial year to draw conclusions about the year as a whole.
"The Government is committed to dealing with the deficit, which will help keep interest rates lower for longer and support millions of families and businesses across the country," said its spokesman.
Meanwhile, in Brussels, Jose Manuel Barroso, the European Commission President, said this week's EU summit would be a "defining moment for European integration".
As Cyprus became the fifth eurozone country in need of a bailout, Mr Barroso told business leaders: "It is now clear that the world expects Europe to commit to credible and concrete solutions to become more integrated and more united.
"We are now in a defining moment for European integration. We must articulate the vision of where Europe must go and a concrete path for how to get there," he added.
Herman Van Rompuy, the European Council President, released a seven-page report on closer fiscal and banking union, which included creating a European treasury that would have powers over national budgets.
However, as the document was published Angela Merkel, the German Chancellor, sought to bury once and for all the idea of common eurozone bonds, insisting Europe would not share total debt liability "as long as I live".
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