King says BOE may cut rates again

LONDON, Nov. 25 (UPI) -- Bank of England Gov. Mervyn King said Tuesday the central bank may need to cut rates to stimulate the country's sluggish lending.

"I am in no doubt that the single most pressing challenge to domestic economic policy is to get the banking system to get lending in any normal sense. That is more important than anything else at present." King told members of the Treasury Select Committee, The Times of London reported Tuesday.

"We may need to cut (the) bank rate more than we would otherwise have done," King said.

The bank has dropped key lending rates from 3 percent to 2 percent since Oct. 8.

King said reduced lending may lead to deflation. Further, he said, lending to spur the economy would be in the best interest of the country's financial firms.

"Banks are giving up profitable lending opportunity in order to behave defensively and reduce the size of their balance sheet," he said.

"Collectively that makes no sense at all because if all banks behave in that way, then the economy will go into a steep recession and the banks will themselves see bigger losses on pre-existing loans," he said.