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Sir Mervyn King, the Bank of England governor issued a stark warning to MPs, on the eve of the Chancellor’s Autumn Statement. The governor warned of financial devastation, saying the banking system had become “less safe” in the last three months. This warning comes as the Organisation for Economic Cooperation and Development announced the shrinking of the UK economy in the last months of 2011 and the first quarter of 2012.

According to the Office of Budget Responsibility, borrowing will increase which will affect the chancellor’s plans to wipe out the public deficit by 2015. It is more likely that the target will be met by 2016-17. Predictions by Sir Mervyn for economic growth are bleak, remaining at close to zero over the coming six months. He also gave a dire warning with regard to the banking system while speaking to the Treasury Select Committee. He said:

“None of us can really know the scale of shocks that could come from the euro area and no banking system can withstand shocks that are sufficiently large so there is certainly no room for complacency.”

The Organisation for Economic Co-operation and Development has predicted that unemployment will rise sharply by 2013, from the current 8.3 percent to 9.1 percent. This will present new social problems, including increased numbers of homeless. In the face of adversity, the Chancellor is adamant that he will not change his plans, with the Treasury saying:

“The difficult decisions taken by the Government have made the UK a relative safe haven in the sovereign debt storm and help to keep interest rates at record low levels for businesses and households.”

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