Good news on way says bank

The economy has turned the corner and is starting to show clear signs of recovery, the Bank of England Governor said today.

Sir Edward George said fears that Britain was about to plunge into a post-11 September crisis could be dismissed.

His comments were immediately seen as good news on jobs and good news on general prosperity.

He also specifically ruled out the need for a dramatic rise in interest rates, which many economists had been predicting was about to happen. His surprisingly upbeat assessment of the economy came when he addressed the influential Treasury Select Committee.

Sir Edward told MPs the attacks had aggravated the global economic slump but had turned out to be a temporary shock, saying "11 September was an added factor in what was already a complicated situation."

"Data after 11 September suggested the slowdown had become more pronounced, but one hopes we are largely through the effects; 11 September hasn't changed the world in a fundamental way."

He said the economy's performance in the final quarter of last year, when it failed to grow, may represent "a low point" and recovery was under way. The economy's decade of unbroken expansion came to an abrupt halt between October and December and the resumption of growth is good news for jobs and businesses.

Despite predictions of better times ahead, Sir Edward moved to soothe concerns of sharply rising interest rates, which experts fear may be needed to keep a lid on inflation. Financial markets are predicting the cost of borrowing will rise from four per cent to five per cent by the end of the year. Sir Edward hinted rates are unlikely to rise so dramatically.

He also played down fears that millions are saddling themselves with debts they cannot afford. "I don't lie awake thinking about it, but it can't continue for ever," he said.

The Governor sparked a sharp fall in the pound by saying it was overvalued against the European single currency. "At some stage there is liable to be some correction and the euro is likely to strengthen against currencies generally," he said.

"Most people would say sterling would be unsustainable if we were to enter [the euro] at the current rate." The comments drove sterling half a cent lower to $1.4150.

But he refused to be drawn on whether Britain should sign up to the single currency. "My position has been absolutely clear since I became Governor. I see my role to bring attention to the pros and cons and describe myself as a euro pragmatist. The current level of the exchange rate is an immediate obstacle to this issue."

He said the Bank's monetary policy committee had never discussed euro entry with the Government.

Alan Greenspan, chairman of America's central bank, last night signalled he is cautiously optimistic about prospects for a US economic recovery, although its speed would be only moderate.

Figures today are expected to show the US economy expanded by more than previously thought in the final quarter of last year, confirming it has avoided recession.

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