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Last Updated: Oct 28th, 2008 - 17:57:18 |
LONDON (Reuters) - Bank of England Deputy Governor Charles Bean warned on Monday that the global economic slowdown is likely to "drag on for some considerable time".
The market upheavals which started a year ago have spread to the wider economy, threatening to throw the industrialised world into recession, while soaring fuel and food prices have pushed up inflation, giving central banks little room for manoeuvre.
"Last year this was a financial crisis that we thought with a bit of luck would be over by the time of Christmas, but it has dragged on for a year and looks like it will drag on for some considerable time further yet," Bean told BBC radio.
Speaking from the annual conference of the world's top central bankers in Jackson Hole, Wyoming, Bean said he believed he and his colleagues are facing the biggest financial challenge of the last 40 years.
"It's fair to say that if you look at the shocks impinging on us this is at least as challenging a time as back in the 1970s," said Bean.
"Some people have said it's as big a financial shock as the Great Depression and as far as the oil shock goes the rise in oil prices is in the same order of magnitude that we had to deal in the 1970s."
The credit crunch has cost thousands of jobs in the financial services industry and prompted bail-outs of U.S. investment bank Bear Stearns and mortgage lender Northern Rock, and Bean said that volatility had left central bankers in a cautious mood.
"There are periods when markets look like they are getting better. Then another grenade explodes, another bout of fear of sustainability of some financial institutions, maybe intervention by the authorities.
"It has been very much ebb and flow and the mood here is very much one of financial caution as regards the next year. We have our fingers crossed but there is the recognition there is still quite a long way to go yet."
Fears of recession in the economy were fuelled last week after data showed economic growth ground to a halt in the second quarter of 2008, but Bean is hopeful there will be a return to growth next year.
"On the assumption commodity prices remain stable and if anything fall back, then inflation should drop back as we go through next year.
"One would hope that the conditions in credit markets should gradually start to improve and those two factors will help to ensure growth will start to pick up as we go through next year.
"It's going to be a tricky period. Household real income is very low. That will make it difficult for households and there are difficult social issues that will arise.
"But the important thing is people realise this is just a transitory period of subdued of growth and we will get through the other side and growth will resume to more normal levels.
"Hopefully we can go back to something like the steady growth that we experienced over the past decade."
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