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The British economy is likely to see positive growth in the second half of 2009 as the economy appears to have turned an important corner on the road to recovery, Bank of England executive director and chief economist Spencer Dale said Thursday.
"Output is no longer in free fall, the banking system has stabilized, confidence levels have improved, and the risk of a really bad economic depression has receded," Dale said in a speech at the Exeter Chamber of Commerce.
He said the turnaround in growth is underpinned by the extraordinary loosening in monetary policy undertaken by the monetary policy committee over the past twelve months.
"Economic activity is being supported further by the easing in fiscal policy, the substantial depreciation in sterling, and by the fact that the inventory adjustment appears to be beginning to run its course."
But, he cautioned that Britain's economic recovery would be slow and protracted as unemployment is likely to continue rising for a period and firms will still face sluggish demand.
Moreover, "The structural adjustments that need to occur - to the structure of the banking system; to the balance of global trade flows, and to the level of public and possibly household debt - have the potential to delay and derail the recovery," he said.
"But monetary policy can not - and should not - seek to prevent those adjustments. They are necessary for the long-run stability of our economy."
Further, he said the BoE's asset purchase programme is working. "As with changes in interest rates, it will take some time before we see the impact of our purchases feeding through into higher aggregate spending and inflation. However, there are some encouraging signs that the medicine is working."
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