Britain faces a long road back to pre-crisis economic growth rates as banks are still reducing their balance sheets, Bank of England Governor Mervyn King said on Tuesday.

The central bank governor gave no indication whether he thought that the fragile recovery needed yet another cash injection.

I see no economic reason why we cannot in the long run go back to the sort of growth rates we had before, King said in a hearing at the House of Lords Economic Affairs Committee.

Once we come through this crisis we will able to get back to that sort of period again, but it will take some time, he said.

Britain's recovery from the 2007/2009 crisis has been very sluggish and some economists think the country's potential to grow has been severely damaged. That could make the medium-term growth view of the Bank and the government's independent Office for Budget Responsibility too optimistic.

Fellow policymaker Adam Posen said Britain's recovery had been lagging the rebound in the United States because of the government's austerity measures, a lack of credit from banks and the hit to consumers from higher energy prices, adding that the differences should recede.

I am hopeful that we are on the cusp of a more robust recovery in both economies - in the absence of premature policy tightening - and though the UK will take some time to catch up with the US, it largely will, Posen said in a speech.


Central bank governor King stressed that the country's banks were still under pressure to reduce their balance sheets even though funding costs had come down. Banks clearly face pressure in funding markets to reduce leverage, he said.

Posen said in his speech that Britain's banking system

With the government's hands tied by its pledge to erase a huge budget deficit, the pressure to boost growth remains on the central bank. Asked whether he thought more easing might be necessary, King said only that the Monetary Policy Committee took its decision on a month-by-month basis.

We are prepared to change our minds each and every month, King said. If we were to do more, it would be in the form of conventional gilt purchases.

In February, the central bank sanctioned a 50 billion pound extension of its asset purchases to a total of 325 billion pounds, though two of the nine members - David Miles and Posen - voted for a larger increase.

And minutes from the March meeting indicated growing concern about the impact of higher oil prices and future wage rises on inflation among policymakers, though Miles and Posen again voted for an increase in the asset purchase total.

Posen gave no hint about his future voting intentions in his speech, saying only that monetary policy had to continue supporting the recovery of investment.

A string of more upbeat news on the economy has dampened fears of a renewed recession after the contraction at the end of last year and most economists don't expect another extension of quantitative easing once the current programme in May.

The governor also defended the central bank's inflation fighting record, saying its credibility had not suffered because in the past years when inflation had been consistently above its two percent target.

If you look at the conventional indicators of credibility - inflation expectation - there's no sign that they have moved up, he said, adding that wage deals actually were below a level consistent with one necessary meeting the Bank's target.

The Bank predicts that inflation will ease further from February's 3.4 percent and fall below the 2 percent target later this year for the first time since November 2009.

(Additional reporting by Fiona Shaikh and Peter Griffiths; editing by Stephen Nisbet, Ron Askew)