King warns of "long, hard slog" before recovery

By David Milliken and Fiona Shaikh

LONDON (Reuters) - Economic recovery could still be a "long, hard slog" despite encouraging recent data, Bank of England Governor Mervyn King said on Wednesday, in a sign that the central bank is in no hurry to tighten policy.

His cautious remarks to a parliamentary committee were echoed by his Monetary Policy Committee colleagues who underlined the uncertainty facing policymakers, given a continued dearth of bank lending.

"I feel more uncertain now than ever. This is a pattern of recession that we've not seen since the 1930s," he said.

King said it may be a while yet before the economy was in a position to make good the past year's loss of output. "There has to be a risk that it will be a long, hard slog because of the difficulties in the banking sector."

Sterling fell after the gloomy outlook and analysts said the BoE may yet still raise the scale of its 125 billion pound asset-buying programme funded by newly-created money.

"The MPC appears to be keeping an open mind on whether the Bank of England will need to further increase the amount that it is spending on quantitative easing," said Howard Archer, economist at IHS Global Insight.

King also said the government needed to take faster action to reduce the "truly extraordinary" budget deficit than is currently pencilled in, assuming that economic growth does recover as forecast.

"Although we are finding it easy now to finance those deficits by issuing gilts, there could be challenges down the road," he said. "What is needed is a credible statement of the path that will guide the reduction in deficits over the years."