The British economy will need to slow down in 1998 to ensure steady growth, warns the Governor of the Bank of England, Eddie George.

Mr George said although falling unemployment and low inflation were "very encouraging", the economy had been growing too fast over the last year.

"We have now got a more difficult position because we've used up most of the spare capacity in the economy and so the judgements become more difficult.

"We have been growing at an unsustainably rapid rate over the last 12 months, so the economy will need to slow down during the course of next year. And we believe it will slow down.

"Now whether you regard that as gloomy depends upon what happens beyond that."

Asked if he thought a recession was looming, Mr George said: "Frankly, nobody knows with any great confidence precisely how fast or how soon the slow-down will occur.

Eddie George: Hopeful that recession is not around the corner

"We made our forecast in November in which we showed that the economy would slow down, but we weren't anticipating a recession.

"But it could be either side of that. We saw the risks in fact on the upside of that, rather than the downside."

Entry to a single currency on hold

Mr George expressed support for the Government's European policy and said the Chancellor's statement on the single currency in October - in which he said Britain would not join in the first wave in January 1999 - was "extremely welcome".

"It would have been risky for the UK to join in the first wave, not least because our cyclical position is really out of sync with the position in continental Europe."

Mr George also hinted that he would be happy to comply with the Government's wish that he stay in his job for another two years.

Although he said he had not addressed the question directly, he added: "I find it difficult to imagine not being there, but that's looking backwards rather than forwards."
 

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