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'Textbook response' to recession
Sir Mervyn King says the Bank of England was late to understand how fragile the banking system was
Bank of England Governor Sir Mervyn King has backed the Government's "textbook response" to the economic crisis despite the UK's slide back into recession.
He blamed the spike in food and energy prices for growth stalling but in a boost for Chancellor George Osborne insisted there were "signs of a recovery".
Sir Mervyn admitted the Bank had been "late to the game" in understanding how fragile the banking system was, but insisted the institution was not alone in failing to grasp the scale of the crisis.
The UK suffered a shock return to recession after official figures showed the economy shrank in the first quarter of this year, following a contraction in the final three months of 2011.
Labour has claimed it is a recession "made in Downing Street", but in an interview with BBC Radio 4's Today programme Sir Mervyn backed the coalition's approach to tackling the budget deficit.
"The strategy was that there would be a gradual move towards reducing the budget deficit over five years, that there would be an acceptance of the significant fall in sterling of 25% and there would be a rebalancing of the economy," he said.
"We had to rebalance our economy because we had a trade deficit. So this was an absolutely textbook response to the situation. If it had not been for the squeeze on real take-home pay being exacerbated by the rise in energy and food prices then I think we would have seen some growth."
He said there was a "patchy picture" around the country but "there are indeed signs of a recovery coming and we see that in the business surveys and I think also in the employment data".
The Governor said any government coming to power in 2010 would have had to tackle the budget deficit: "A balance had to be struck between either cutting that very rapidly, which would undoubtedly have pushed the economy back into a deep recession, or pushing it off for several years and not publishing a detailed plan to deal with it.
"Both of those, I think, would have been wrong. A balance had to be struck between them, I think the balance that was struck was a perfectly sensible one."