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The UK economy has “only just started” along its road to economic recovery, according to Bank of England governor Mervyn King.

In its latest inflation report, the Bank indicated it would be late 2011 before the UK economy recovered to the level it was at before the recession.

Mr King also warned inflation may “rise sharply over the next few months”.

He also said the Bank was “open minded” about extending its programme of pumping money into the economy.

Last week, the Bank extended the programme – a policy of injecting money into the economy through buying bonds from banks and other companies called quantitative easing – by £25bn.

http://news.bbc.co.uk/1/hi/business/8353931.stm

News from the BBC:

A big shake-up of UK banks with taxpayer support will be unveiled on Tuesday, the BBC understands.

Announcements on the future of Lloyds and Royal Bank of Scotland will be made jointly by the banks and the Treasury.

Lloyds is expected to say it will raise more than £20bn from investors in return for staying out of the state-run insurance scheme to cover toxic loans.

Both will also have to set up new banks out of their existing branch networks and sell them within four years.

The creation of the new banks is on the instruction of the European Competition Commissioner Neelie Kroes and is supposed to boost competition.

RBS is also expected to confirm that it will participate in the government’s toxic loan scheme, but on different terms.

The bank, which is 70% state-owned, would buy an insurance policy from the government to cover future losses from some of its more toxic investments.