In laying out the forecast for the economy, Mervyn King, pointed the finger at what he believed to be its greatest challenge – its financial sector. “In the light of the state of balance sheets, especially in the financial sector, the [monetary policy] committee judges that the risks are weighted towards a relatively slow and protracted recovery,” said the Bank of England governor.

In short, the general reluctance of banks to lend to ordinary businesses and households remains the biggest single threat to economic recovery. Banks, their balance sheets savaged by losses on lending for housing and corporate expansion, are now retreating from credit provision at a brisk trot. Without access to credit, demand cannot begin to expand again to a level that would be consistent with economic recovery.