UK economy facing 'great challenge'

The coming year will pose the greatest economic challenges since 1997, the governor of the Bank of England has said.Mervyn King predicted economic activity could slow "quite sharply" in the short term as consumers save more of their income.In a speech to members of the Institute of Directors in Bristol, he said: "The next year will pose economic challenges for all of us - more so than at any time since the Bank of England was given its independence in 1997."He called for Britons to save more of their money and issued a warning that the Government's spending levels could not continue."For some years we have been able to finance current account deficits by borrowing, often through banks, at unusually low interest rates on world capital markets," he said."Such borrowing is now becoming more expensive. Unless we spend less and save more, our current account position will deteriorate."He also appeared to open the way for an interest rate cut from its present level of 5.5 per cent when the MPC holds its next meeting on February 6 and 7.Mr King spoke the day after the FTSE 100 Index suffered its biggest one-day points drop since the September 11 2001 terrorist attacks.Earlier, the London market bounced back after US policymakers cut interest rates.The US Federal Reserve's decision to reduce rates by three quarters of a point ahead of trading sent the FTSE 100 Index up 161.9 points to close at 5740.1, a 3 per cent increase on the previous day.But the gains were not enough to offset Black Monday's losses.© Independent Television News Limited 2008. All rights reserved.

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ITN | January 22, 2008

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