Page last updated at 10:00 GMT, Monday, 25 August 2008 11:00 UK

Financial slowdown 'to drag on'

Charles Bean
Charles Bean took over as deputy governor earlier this year

The current global financial slowdown could "drag on for some considerable time", the Bank of England's new deputy governor has warned.

Charles Bean said the downturn was at least as bad as in the 1970s and that every time the markets began to look better, "another grenade" exploded.

But he said growth should pick up and inflation fall next year, if oil prices and credit markets stabilised.

Mr Bean described the crisis as a "transitory period" that would pass.

The deputy governor, who was speaking at the annual conference of the world's top central bankers in Jackson Hole, Wyoming, said those at last year's event believed the crisis would have been over by Christmas 2007.

We've got our fingers crossed that things will improve. But there is the recognition that there is still a long way to go yet
Charles Bean
Bank of England deputy governor

But instead, he said, it had carried on for a year and every time the markets looked like they were stabilising, "another grenade" exploded as bouts of fear over sustainability hit financial institutions.

"It looks like it will drag on for some considerable time further yet."

He described the mood at the conference as one of "considerable caution for the next year".

"We've got our fingers crossed that things will improve. But there is the recognition that there is still a long way to go yet," he said.

'Better regulation'

He went on to say the global financial climate was "as challenging a time as the 1970s", but said it would be "foolish to believe" it could be prevented from happening again.

However, regulation could be improved to "reduce problems when they occur", he said.

Mr Bean, who took over as deputy governor earlier this year, also called on people not to place too much significance on the latest UK growth figures, which showed the economy at a standstill.

Figures from the Office for National Statistics, released earlier this month, showed no growth from the first quarter of 2008.

The deputy governor said he was hopeful growth would begin to pick up again next year and that inflation would also "drop back".

However, he acknowledged the squeeze on household incomes could create social issues.

The most important message, he said, was that the crisis would come to an end.

"This is just a transitory period of subdued growth and we will get through the other side and the growth will resume to more normal levels."

Bank of England governor Mervyn King has already warned that the UK economy is in for a difficult and painful period due to a combination of high inflation and rapidly slowing growth.

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