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Darling says recession now likely Darling says recession now likely
(40 minutes later)
Alistair Darling has admitted that the UK economy is most likely entering recession, but expects growth to return "in the second half of next year". Alistair Darling has admitted that the UK economy is likely to enter a recession, but expects growth to return "in the second half of next year".
Describing the current economic situation as "difficult", the chancellor said continuing low interest rates would help the economy recover.Describing the current economic situation as "difficult", the chancellor said continuing low interest rates would help the economy recover.
Speaking to a key Commons committee, he added that deflation was not a risk.Speaking to a key Commons committee, he added that deflation was not a risk.
Mr Darling's comments came after the news that key Bank of England member David Blanchflower is to stand down.Mr Darling's comments came after the news that key Bank of England member David Blanchflower is to stand down.
Mr Blanchflower has been the most consistent proponent of lower interest rates to aid the economic recovery.Mr Blanchflower has been the most consistent proponent of lower interest rates to aid the economic recovery.
He will leave the Bank's interest rate setting Monetary Policy Committee in May next year. He will leave the Bank's interest rate-setting Monetary Policy Committee (MPC) in May next year.
Mr Darling also said "was prepared to do more to free up lending" and would be meeting the heads of the major banks to urge them to do more to help small businesses.Mr Darling also said "was prepared to do more to free up lending" and would be meeting the heads of the major banks to urge them to do more to help small businesses.
'Lending need''Lending need'
With UK interest rates now at 2% following a series of cuts, Mr Darling told the Treasury Committee that he did not see such a low level as being a deflation risk.With UK interest rates now at 2% following a series of cuts, Mr Darling told the Treasury Committee that he did not see such a low level as being a deflation risk.
Mr Blanchflower had long led the call for lower interest ratesMr Blanchflower had long led the call for lower interest rates
"I don't think that is the position," he said. Rather, Mr Darling said he sees continuing low interest rates as the key to get banks lending again."I don't think that is the position," he said. Rather, Mr Darling said he sees continuing low interest rates as the key to get banks lending again.
"The greater risk to our economy and the world economy is growth, and the need to maintain lending," he told members of the Treasury Committee."The greater risk to our economy and the world economy is growth, and the need to maintain lending," he told members of the Treasury Committee.
Deflation causes problems for economies as it causes people to delay big purchases in the expectation that prices will be lower in the futureDeflation causes problems for economies as it causes people to delay big purchases in the expectation that prices will be lower in the future
Mr Darling and the Bank of England are hoping that rather than risk deflation, low interest rates will both help bank lending return to normal, and ease financial pressures on companies.Mr Darling and the Bank of England are hoping that rather than risk deflation, low interest rates will both help bank lending return to normal, and ease financial pressures on companies.
'Confident''Confident'
Mr Darling was discussing his pre-Budget report, which warned that government borrowing would rise sharply because of the economic slowdown.Mr Darling was discussing his pre-Budget report, which warned that government borrowing would rise sharply because of the economic slowdown.
He also reiterated the government's position - as indicated by the economic data - that the UK is now likely to be entering recession. He also reiterated the government's position - as indicated by the economic data - that the UK is now likely to enter a recession.
Yet Mr Darling said he remained "confident" the UK economy would pull through, helped by the low interest rates, despite the fact the global economic situation remains "full of uncertainty". However, Mr Darling said he remained "confident" the UK economy would pull through, helped by low interest rates, despite the fact the global economic situation remains "full of uncertainty".
He added that he expected global oil and commodity prices to remain low for some time.He added that he expected global oil and commodity prices to remain low for some time.
Mr Darling's comments came after it was announced that Bank of England deputy governor Sir John Gieve is to be replaced by current Monetary Policy Committee (MPC) member, and Bank of England official, Paul Tucker 'More to do'
Turning his attention to the continued efforts to encourage the banks to resume normal lending to firms and individuals, Mr Darling said he was "prepared to do more" to free this up.
He said he hoped the government's new panel to monitor the levels of lending to small firms would help to achieve this.
The panel, which will be chaired by Business Secretary Lord Mandelson and attended by the chief executives of all the main banks, is due to meet on Thursday.
"We believe there is more the banks can do, particularly to small and medium-sized enterprises," said Mr Darling.
His comments came after it was announced that Bank of England deputy governor Sir John Gieve is to be replaced by Paul Tucker, a Bank of England official and an MPC member.
Sir John, who was in charge of financial stability, announced his retirement earlier in the year.Sir John, who was in charge of financial stability, announced his retirement earlier in the year.