In his opening statement to the HM Treasury this morning in the UK, the governor of the Bank of England, Mervyn King, warned that the gradual improvement in credit availability is now largely halted, and that markets are growing more volatile. King said this development is proof the same problems that caused the credit crisis in the first place have yet to be adequately tackled. King provided the opening remarks to the Bank’s quarterly presentation to the Treasury. “The ability of some countries to achieve necessary fiscal consolidation are affecting confidence in the ability of banks to repair their balance sheets,” King said. “Imbalances are likely to be larger this year than last, and will probably still be around three-quarters of their level at the peak immediately prior to the crisis. Until these underlying problems are resolved, uncertainty about the outlook for the world economy will remain.” King said that the UK economy struggles to move away from consumption towards net exports, and to raise the national savings rate. Without doing this, inflation can’t be capped, employment won’t improve and the economy will not rebalance. He added that bank rates, currently 0.5%, at some point will need to return “to more normal levels.” In the actual presentation, Paul Fisher, executive director of Markets and a member of the Monetary Policy Committee, said that despite bank-led stimulus packages like the £200bn ($312bn) Asset Purchase Program, there are few signs of a durable recovery. Like King, Fisher argued that drags on banks, such as sovereign debt woes and changes to capital buffer programs like Basel, must be implemented slowly in the future, as “an insufficient supply of credit – especially to support investment by businesses – would be a major drag on the recovery going forward.” Write to Jacob Gaffney.

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