UK 'slipping into recession', says Bank of England chief

The governor of the Bank of England Mervyn King has predicted the UK economy will slip into recession in the early part of next year.

Speaking to business leaders in Leeds last night King said it was "likely" the country was entering a recession and that the regime of cheap interbank lending was effectively over.

He said recent events had seen the UK banking system closer to collapse than at any time since 1918.

However he said the government's cash injection for troubled banks would be seen as the point "when we turned the corner".

Against a backdrop of rising unemployment and falling house prices King said the Bank would set interest rates at levels to meet inflation targets of two per cent in the longer term.

King's comments came as a raft of surveys pointed to falling demand for manufactured goods, declining consumer spending and a banking system still in an "enfeebled state", despite the billions of pounds of taxpayers' money being pumped into a number of troubled institutions.