Key indicators suggest that the UK is on the brink of a recession, Bank of England governor Mervyn King has warned.

In a prepared statement, the governor commented on the speed with which the current economic turbulence has descended on Britains and other major economies of the world. He explained that following the collapse of Lehman Brothers on September 15th, swift and dramatic measures have been required to prevent the collapse of many other large financial institutions. And still, he explained, figures show that lending between banks has almost ground to a halt, with some finding it difficult to get loans with repayment dates any later than the following day.

As a result, consumers have seen their access to credit cards, personal loans and secured loans for house purchase dwindle steadily, indicating that the UK economy is headed for a period of sustained contraction.

“The scale of central bank liquidity support during the crisis has been unprecedented and all central banks have increased the scale of their lending in broadly similar ways,” he explained. However, he warned that while large scale cash injections can help banks to give out loans more freely, it can also mask the breadth and depth of an economic crisis and delay what he termed an “inevitable day of reckoning”.

He reminded people that while past lessons in places like Japan, Sweden and Finland show that recapitalisation is key to return banking systems to a state of good health, there will also need to be systematic reform of monetary markets in order to restore trust among lending institutions.

“We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner,” he insisted.

He went on to insist that banks will eventually begin lending to each other more confidently – which may bring down rates for personal loans and mortgages – but he warned that the “age of innocence” is over.

“Looking ahead, the outlook is obviously very uncertain,” Mr King warned, with the impact of the credit crunch on parts of the economy which have thrived in the past said to be difficult to gauge at present. He concluded by insisting that with the vicissitudes of the economy so starkly exposed in recent weeks, all interested parties should work together to avoid the kind of dramatic headlines seen in recent weeks.

“Let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing,” he concluded.

For those who have found their access to lending squeezed during the recent money crisis, taking out a bad credit loan may prove an effective way to get back on a firm financial footing. Opting for this type of loan may be of particular interest to those who have seen their disposable income shrink in the face of soaring inflation. A recent report from uSwitch showed that such funds have decreased 15 per cent in the past year.

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