King: I'm struck by how much has changed

Mervyn King has said he is 'struck' by how much the UK's outlook has changed since last month and blames Britain's darkening picture on the eurozone crisis.

Speaking to the Treasury Select Committee (TSC) the Bank of England governor cited the worsening sovereign debt crisis as a key concern.

As business confidence dies away in Germany and as the crisis threatens giants such as the US, King (pictured) said he is pessimistic about the outlook for the eurozone, adding that the crisis is dragging on Britain's recovery prospects.

King said: 'In the last six weeks I am very struck by how much has changed.  I am pessimistic [about the eurozone].  I am particularly concerned because over two years now we have seen the situation get worse and the problem pushed down the road.'

At the last meeting of the Bank of England's rate-setting committee, King said he was in favour of additional stimulus in order to shore up the UK and urged members of the monetary policy committee (MPC) to back his call for a £50 billion injection.

While three other MPC supported his view, five were against, keeping quantitative easing (QE) on hold and leaving markets disappointed.

Moreover, as King took to the floor to address the TSC, data showed the UK had been hit by a fall in tax receipts, pushing up public debt. Investors continued to watch Europe where Spain held a €3.08 billion bond auction and Cyprus officially asked for aid.

Howard Archer, chief European economist at IHS Global Insight, said it was now clear that King is 'highly concerned' about the economic outlook for Britain and the risk of eurozone implosion, making it increasingly likely the MPC will vote with him for more QE at their next meeting.

'The testimonies and remarks of Mervyn King and other MPC members to the Treasury Select Committee are pretty grim, and fan belief that the Bank of England is likely to pull the quantitative easing lever again in July, most likely with a £50 billion increase to take the stock up to £375 billion,' Archer said. 

'With the MPC only voting 5-4 against more QE at their June meeting, Mervyn only needs one MPC member to change his mind to secure more QE in July.'