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Mervyn King issues warning on UK economy

Mervyn King has again fairly and squarely dashed hopes of a recovery in the UK economy in the short term. He has issued a warning this evening that UK workers need to brace themselves for further pay cuts, or pay freezes, in the short to medium term and confirmed that he believes the UK economy will struggle to grow until the UK budget deficit is addressed.

There is widespread speculation that Alistair Darling will issue a detailed plan of attack with regards to the UK budget deficit in his next budget - the last before the election. If he is not forthcoming with details about his plan of attack it is likely we will see sterling suffer again and investors become more concerned about the "structural problems" within the UK economy and government finances. Can Alistair Darling afford not to tackle the problem head-on before the election?

Despite the fact that many people believe the UK economy is now over the worst it appears there may be more short-term pain before the UK economy is able to rebase and rebuild for the future. Short-term pain for long-term gain seems to be the catchphrase of the moment but how painful the short term could become is another subject that is being hotly debated amongst analysts and economists.

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