King warns of a credit crunch risk

THE BANK of England’s financial policy committee (FPC) is examining the impact of a European credit crunch on UK banks, governor Sir Mervyn King warned yesterday.

King blamed much of the UK’s current and expected economic woes on the Eurozone crisis.

He told the Treasury Select Committee that only transfers from financially sound governments to those with debt problems could help to solve the sovereign debt crisis in the short term. “Markets are looking for other governments to provide the transfers,” he said.

In the longer term, he believes that only structural changes can help embattled economies.

The Bank of England governor also stressed the importance of achieving long-term growth in the UK.

“This is not a time to fine-tune,” he said, “but to think about the next six or seven years.”

In his written submission to the committees, Sir Mervyn stressed the need “to continue the process of rebalancing and deleveraging.”

However, he later conceded he had “no idea” of the timescale on which this would take place.

The Bank of England’s Paul Fisher restated the view that the quantitative easing programme may be extended in February if economic conditions continue to deteriorate.