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Wednesday
Jul152009

British economy braced for recovery, says Bank’s new boy

The UK economy is nudging ahead of the US and European rivals in rebuilding the banking system as a launch pad for economic recovery, said Adam Posen, the latest economic expert to join the Bank of England.

Tough and more decisive action by the UK government means the banking system is creeping back to normality, he said. “The UK seems to be well ahead of the US and most euro area governments in this area of providing banks capital and disclosing their real situation,” Dr Posen, who joins the Bank’s interest rate setting Monetary Policy Committee in September, told MPs.

The government, Bank, and Financial Services Authority, “have been more forthright in dealing with the bank problem and more aggressive about it”, he explained.

Dr Posen said Western economies faced a race to “beat the clock” so banking operations had returned to relative normality before extraordinary stimulus measures like quantative easing to shore up growth ran out.

“If you do not fix the banking system by the time your stimulus runs out, then private demand will not pick up the baton and run,” he told the Commons Treasury Committee. “We have a clock ticking in the UK, US and the euro area.”

Dr Posen, an American, said he felt Britain was among the best-placed economies, contrasting the situation back in the US. 

“I think in all honesty the UK is closer to beating the clock than the US or Germany, or most of the other major economies,” he said. “I am more concerned about the bank issues coming back to the fore in the US than in the UK. There’s still a lot of unfinished business.”

The Chancellor Alistair Darling has also said he would meet high street bank bosses shortly to ensure they met commitments to increase lending.

“It is absolutely imperative that banks see through past lending decisions,” he said. “We need to get credit flowing again — that will be the thing that helps drive the recovery.”

Dr Posen also said he felt the recession will end this year, but warned recovery could be shaky at first.

 



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