Bank chief: Don't panic

Bank of England Governor Sir Edward George today sounded a "don't panic" message on the state of the economy in the year ahead.

He dismissed dire warnings of a looming slump, and predicted that continued steady growth in house prices and consumer spending would help to insulate Britain from the worst of the global downturn.

He spoke out after new high street sales figures showed that activity picked up in the last days before Christmas and the first days of the sales, after a miserable start to the festive trading season.

Sir Edward's words of comfort were in sharp contrast to Tony Blair, who used his own New Year message this week to acknowledge public concern about the impact an economic slowdown could have on jobs and pensions.

The Governor acknowledged the risks from a worldwide slump, fuelled by fears of war in Iraq, and said the Bank remained ready to cut interest rates if things proved worse than expected.

However, he pointed out that Chancellor Gordon Brown's decision to raise public spending would help to shore up the economy if private- sector activity slowed. In an interview with Radio 4's Today programme he said: "The expectation we have is still for a gradual moderation in consumer spending.

"We think the economy is being supported helpfully by public spending and we see a gradual pickup in external demand. And we see all that with inflation fairly close to target. We have clearly identified the risks and uncertainties to the global economy ... and we will respond as necessary if those risks appear to be crystallising."

On house prices, he pointed out that interest rates remained low, household debt levels remained manageable and incomes continued to rise gradually.

He said: "It's not easy to see why there should be a crash in house prices, which is the way which a lot of commentators like to describe it."

Shop sales bounced back after a miserable few weeks in the run-up to Christmas, new figures show today.

Retail monitor SPSL said there were two per cent more shoppers between Boxing Day and 31 December than a year ago. Retail analysts said consumers have been waiting for bargains in post-Christmas sales.