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MPC member talks of uncertain outlook

Paul Tucker, a member of the Bank of England MPC, is this evening set to give an insight into the UK economy at a meeting of the Association of British Insurers. The outline of his speech has been released to the public and will contain a cautious note and cautious approach to the UK economy with concerns that bank lending has not recovered sufficiently to assist with a short to medium-term recovery.

As many people believe, an increase in the liquidity levels of the UK banking system is paramount to a recovery in the UK economy and until we see this the UK economy could at best tread water. In basic terms, UK banks would wish to see a recovery before they inject more capital into the system although the government is trying to persuade banks to inject more capital prior to a recovery - which policy will be victorious remains to be seen. At the end of the day, UK banks are still owned by an array of shareholders, including the taxpayer, who require a capital return on their investment.

It also seems a little perverse to ask banks to increase liquidity before demand is there while at the same time insisting that as little risk as possible is taken in the future. Who will win the battle remains to be seen!

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