Mervyn King has confirmed that the UK is entering a recession. The announcement was made during a speech given to the CBI, Institute of Directors, Leeds Chamber of Commerce and Yorkshire Forward.

In his speech King described the state of the financial crisis in the UK, the steps that must be taken by the government in dealing with the credit crunch and the future of the UK and world economies.

According to King the decision to recapitalise the UK banking system was a necessity and already “having a major impact on the restoration of market confidence in banks.”

The scheme will allow banks to swap temporarily their high quality mortgage-backed and other securities for UK Treasury Bills - in the hope that the banks will be able to approve more loans and mortgages and increase consumer confidence in financial markets. Read more: New £50bn Government Scheme to Help Out Banks
 

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He described the events of the credit crunch as “almost unimaginable” with specific reference to the collapse of Wall Street’s fourth largest bank - Lehman Brothers. Read more: US Lehman Brothers Files for Bankruptcy

“It is difficult to exaggerate the severity and importance of those events. Not since the beginning of the First World War has our banking system been so close to collapse,” King says.

The Governor went on to claim that when the financial turmoil began in August 2007, most believed the chaos would be short-lived. “But, as time passed and markets did not re-open, it became clear that the problem was deeper seated.”

“Central bank liquidity is sticking plaster, useful and important, but not a substitute for proper treatment.”

“So, what should the Monetary Policy Committee do now? It must continue to set Bank Rate in order to meet the 2% inflation target, not next month or the month after, but further ahead when the impact of recent developments in both credit supply and world commodity prices will have worked their way through the economy.”

For more reports on the credit crunch visit:

Young Adults ‘Most at Risk in Recession’

Mortgage Fraud on the Rise

Credit Crunch Update: Debt Levels Soar by £800m

Credit Crunch Anniversary: Brits Value Shopping

Credit Crunch Latest: Job Market Fears Rise

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