-Adds Detail To Version Transmitted At 1229 GMT

LONDON (MNI) – The UK economy is not showing great signs of
recovery, while the euro area crisis is dampening investment around the
world, Bank of England Governor Mervyn King said in a BBC Radio 4
programme.

King’s comments in a regional visit were downbeat, highlighting the
gloomy outlook for the UK economy. He warned that the euro area crisis
was growing, with policymakers just “kicking the can down the road.”

“Back in 2010 we had expected the economy to expand slowly but
gradually so that we would see a recovery coming through. That has not
happened and the economy has basically been flat for two years and
doesn’t show a great deal of signs of impending recovery,” King said.

The BOE Governor also expressed concern that the recent rise in
sterling, and weakness of the euro area, was hitting UK export growth.

“I am worried about the outlook for exports because sterling has
risen over the past year, that’s going to be a challenge and because of
the state of the euro area. I don’t think there’s much that we can do
about the state of the euro area but I do not conceal from you the fact
that it is the biggest worry I have for the outlook for the UK,” King
said.

The euro area crisis has hit investment plans globally, King says.

“There is a great black cloud of uncertainty hanging over
businesses all around the world and the result is until they know how
this situation is going to be resolved they’re holding back from
investment and spending,” he said.

The problems in the euro area have fed through to elevated
borrowing and lending rates in the UK, with interest rates for business
and mortgage lending rates rising in the past six-to-12 months, King
said.

He sees no short term fixes for the Eurozone, saying there was no
strategy in place to tackle the loss of competitiveness in the
peripheral countries.

“I think the challenge there (in the euro area) is how to restore
competitiveness of the countries and the periphery,” King said.

“They can’t change their exchange rate, there has to be an
alternative strategy if they are to regain competitiveness and I don’t
really at this stage see what that strategy is … The result of it is
those countries that have built up a lot of external debt, money which
they owe to the rest of the world, they’re still having to borrow from
the rest of the world,” he added.

“Most financial markets are now not enthusiastic about lending to
those countries… I don’t think in the long-run that this is really a
sustainable position,” he said.

King said that previous policy measures implemented here had not
restored the economy to its previous health and he hoped the latest
stimulus steps would help it inch its way back.

He said the details of joint BOE/Treasury Funding-for-Lending
initiative, designed to boost bank lending, should be announced “very
shortly.”

-London Bureau; Tel: +44207862 7491; email: drobinson@marketnews.com
wwilkes@marketnews.com

[TOPICS: M$B$$$,M$$BE$]