Bank governor says we can play key role in recovery

Sep 24 2009 By Andrew Hebden, The Journal

THE North East could play a key role in Britain's economic recovery by leading the drive for export-led growth, the Governor of the Bank of England said yesterday.

Mervyn King said the region was in a "much better position" than it had been in previous recessions to bounce back strongly from the economic downturn.

And backing The Journal’s Go Global campaign, he said developing the region’s exporting capacity could help tackle one of the "underlying causes" of the financial crisis.

Mr King, who was speaking on a two-day visit to the region, also insisted that the recovery of the "real" economy depended on tackling continuing serious problems in the banking sector.

Backing calls from Financial Services Authority chairman Lord Turner, who said on Tuesday that "real change" was needed in the banking sector, he said: "There are big challenges facing the structure of the UK banking system and we can’t afford to run away from them."

Commenting on his impressions of the North East economy following his visit to the region, he said it reflected other parts of the country with very sharp falls in output beginning to come to an end.

"Output has stabilised," he told The Journal. "There are some signs that growth may be beginning to pick up. But we shouldn’t get too carried away by this. This is clearly very small growth after a very large fall and unemployment has risen so it’s a difficult challenge ahead.

"But I don’t think there are any underlying structural problems which mean that growth can’t resume. When we had the downturns in the 1970s, 1980s and 1990s there were structural issues that needed to be tackled. I don’t think that’s true now. I think once we can get back to a picture where the demand in the world economy grows more normally, then the economy here, as in the rest of the UK, is well positioned to take advantage."

Mr King said he had been impressed by the innovation displayed by businesses across all sectors seen during his first visit to the region in several years. His last planned engagement in 2007 was cancelled when the was called away to handle the crisis at Northern Rock.

Mr King said he was impressed by how the North East economy had evolved.

"I think there have been big changes in the way the local market works, some of the industries that perhaps the recession brought to an end before, we don’t have those now," he said.

"What is so impressive here is clearly the enormous improvement in the infrastructure of the region and that ought to give people confidence that, looking beyond the next couple of years... the long-run picture is pretty bright.

"I think going into the recession, the North East was in a much better position vis-a-vis the rest of the UK than it was in earlier recessions and that’s made a big difference. The starting level of unemployment and the structural issues are quite different to what they were then. In that sense there’s no doubt that the differences between regions has become very much smaller."