Britain's economy is showing signs of recovery, but any improvement is likely to be small compared to the sharp drop in output caused by the global financial crisis, Bank of England Governor Mervyn King said in an interview published on Thursday.
King's remarks on growth are broadly in line with testimony he gave to British lawmakers last week, and he also reiterated his view that Britain needed to rebalance its economy to focus more on exports.
"The fall in the exchange rate that we have seen will be helpful to that process but there's no doubt that what we need to see now is a shift of resources into net exports — whether directly or in producing things that compete with imports," he told The Journal, a regional newspaper based in Newcastle.
Sterling has lost almost a quarter of its value against other major currencies <=GBP> over the past two years, and hit a five-month low against the euro <EURGBP=> on Tuesday.
King, speaking after addressing businesses in Gateshead, northeast England, said he did not expect the region's manufacturing- and export-dominated economy to be much slower to recover than elsewhere in Britain.
"Output has stabilised," he said. "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."
King declined to comment specifically on forecasts by the Confederation of British Industry that predicted growth would be just 0.1 percent in the first three months of next year.
"How rapidly growth will pick up — whether it will be plus a little bit in one quarter, minus a bit in another — I don't think is the big picture at all," he said.
"I think the UK is pretty well set for a recovery but the banking sector is not in good shape and it will take a long time before the balance sheets of the banks are fully repaired," he added.
Future financial regulation needed to ensure that banks did not take too many risks while enjoying an implicit or explicit guarantee from the taxpayer, King said.
Diplomatic sources have said the central bank governor may take a senior role on a new European Union financial stability watchdog alongside his BoE job, but King declined to comment on the speculation.
"I have been involved in no discussions on that whatsoever," he said.
