Bank of England warns recovery path not smooth

economy have largely come to an end, and that business and consumer confidence have "improved somewhat." Improvements in financial markets should in time ease lending conditions to households and businesses, he added, in comments that will be closely scrutinized by economists for clues about the central bank's intentions for its asset purchasing program to boost the money supply. "These developments are encouraging," King told business leaders at a dinner in Edinburgh, Scotland. "But they need to be seen in context, and we should be under no illusion that the path to a sustained recovery will be smooth and painless." "Output is still well below and unemployment well above their levels of a year ago, and are likely to remain so for some time," he added. King's comments come ahead of Friday's eagerly awaited figures on gross domestic product, which economists believe may show modest expansion. The British economy officially entered recession at the turn of the year following two quarters of negative economic growth - the widely accepted definition of a technical recession - in the second half of 2008. economists had pegged gross domestic product to return to growth in the July to September quarter after a 0.6 percent contraction between April and June, but recent surveys on industrial production and business confidence have raised doubts. Conflicting economic data in recent weeks has also left economists unsure of the Bank of England's plans for its 175 billion pound so-called quantitative easing program. The British pound fell against the U.S. dollar on Monday after Bank of England policy maker Adam Posen was quoted as saying that he was "not worried about overshooting inflation right now." The central bank is tasked with keeping inflation at a 2 percent target. Economists said the comments, reported in the Financial Times newspaper over the weekend, suggested that the asset purchase program could be extended when the central bank's nine-member monetary policy committee meets next month. On Friday, the currency rose to an almost seven-month high against the euro on comments by Posen's colleague Paul Fisher that were interpreted as likely signalling at least a temporary halt to the quantitative easing program. King said Tuesday that inflation will likely remain volatile over the coming year, but added that falls in spending will continue to pull down on inflation until spending recovers. He added that the monetary policy committee would continue to make its decision month by month. The committee's next decision is due on Nov. 5. AP