Source: FT.com

Mervyn King on Tuesday night gave his gloomiest assessment of Britain’s economic prospects since becoming Bank of England governor in 2003, saying that the country was now “entering a recession”.

He compared the recent capital flight from British banks with a “mild form” of a 1990s-style emerging market crisis, warning about the risk of another sharp decline in sterling and an even deeper recession.

In one of only three big speeches Mr King gives a year, his views are bound to be taken by markets as a clear sign the Bank is gearing up for further significant cuts in UK interest rates.

The Bank’s quarterly forecasting round is already under way and Mr King’s gloom, punctuated only by relief at the fall in oil prices, will reflect the UK central bank’s new thinking about the economy.

Until Tuesday night, Mr King and the Bank had refused to utter the word “recession”, insisting that the term should only be used to signify a deep contraction in output and not two successive quarters in which the economy might shrink a little.

On Tuesday night he had no such qualms, saying a recession was likely because the recent financial crisis had come on top of the rise in oil prices, which had already squeezed incomes.

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