Britain is "likely" entering a recession, the governor of the Bank of England admitted, but said government efforts to support ailing banks mark the start of a long haul back to normality.
Mervyn King said the events sparked by the collapse of Wall Street giant Lehman Brothers in September, culminating in the re-capitalisation of three high street banks, were "extraordinary, almost unimaginable".
But the re-capitalisation -- the injection of government cash in return for shares -- will come to be seen as "the moment... When we turned the corner" on the banking crisis, he said in a speech in Leeds, central England.
The 37-billion-pound (64-billion-dollar, 47-billion-euro) bailout was "not designed to save the banks as such, but to protect the rest of the economy from the banks", King said.
The banking crisis led to squeeze on the amount of money banks would lend to consumers and companies, tightening people's wallets at a time when high energy and food prices were also reducing their disposable income.
"Taken together, the combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand," the governor said.
"Indeed, it now seems likely that the UK economy is entering a recession."
However, he predicted the bank re-capitalisation has laid the way for a "long, slow haul to restore lending to the real economy, and hence growth of our economy, to more normal conditions".
