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Sunday, 23 September, 2001, 12:22 GMT 13:22 UK
'Too soon' to rule out UK recession
Sir Edward George
George: 'attacks couldn't have happened at worse time'
The governor of the Bank of England, Sir Edward George, has said it is "too soon to say" if the UK will avoid a recession as a result of the recent terror attacks in the United States.

These tragic events could not have happened at a worse time

Sir Edward George
Speaking on the BBC's Breakfast with Frost programme, Sir Edward said the full impact of the attacks on the world economy was not yet apparent.

And he hinted at further UK interest rate cuts in the coming weeks to stimulate demand.

Last week the Bank cut rates to 4.75% from 5%, following reductions by the European Central Bank (ECB) and the US Federal Reserve.

At least seven central banks around the world have now cut interest rates, in a co-ordinated effort to prevent a collapse in the global economy following the attacks.

Bottoming out

Prior to the attacks, Britain had been on course to avoid a major economic downturn, Sir Edward said.

Impact on UK economy
Consumer confidence shaken
Shares slump to four-year lows
Pound weakens against euro
Air travel and insurance industries in crisis
"These tragic events could not have happened at a worse time.

"Before the events of 11 September, the perception that was shared among my central banking colleagues was that we were around the bottom."

Now, with falling share markets and a dent in consumer confidence, it was "too soon to say" whether the British economy would escape a recession, he said.

"The overall impression, at this stage, is that we will see some weakening in the current quarter and perhaps in the next quarter.

"Looking beyond that situation, it is very difficult to see what has changed fundamentally."

But Sir Edward was more upbeat about the longer-term prospects for the UK and global economies.

"Looking beyond the short-term there is no reason to think that the world is going into a really serious decline."

Holding up

The latest data, before 11 September, showed that the UK economy had been holding up better than elsewhere, he added.

This meant that the Bank had been right to make a smaller cut in interest rates in response to the US crisis than most other central banks, he said.

"All of us are watching events really intensely, and we will take further action if we conclude that that is necessary, in the light of what we see as we learn more about what the impact is," Sir Edward said.

Sir Edward said that the pound had weakened recently against the euro, thanks to the euro's gain against the dollar.

And he said a further weakening of the pound would be welcomed by the Bank, as it would ease pressure on the externally-exposed parts of the economy.

Next MPC meeting

The Bank of England's Monetary Policy Committee (MPC) meets on Wednesday, 3 October, to decide its next move on interest rates.

By which time, Sir Edward said, the impact of events in the US will be more clear and financial markets should have stabilised.

Most economists expect the MPC to trim rates to 4.5%.

See also:

21 Sep 01 | Americas
Tourism shaken to the core
19 Sep 01 | Business
Fears grow for US economy
21 Sep 01 | Business
US slump could be 'steep but short'
18 Sep 01 | Business
UK rates cut to 1960s levels
20 Sep 01 | Business
UK trade gap widens
20 Sep 01 | Business
UK shares tumble
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