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LONDON (Reuters) - Tight credit conditions are holding back Britain's economy, the Bank of England's governor said on Friday, urging banks to use the leeway given by regulators to lend more to companies and consumers.
"Uncertainty and tighter credit conditions have acted as strong headwinds to our recovery," BoE governor Mervyn King said in a media conference presenting the central bank's financial stability report.
The Bank of England's risk watchdog recommended that British banks should feel free to tap into their hefty cash piles to keep lending flowing into the recession-hit economy as the economic outlook darkens.
"But it is important that banks are willing to make use of their liquid asset buffers in times of stress, in order to support lending to the real economy," King said,
The BoE's liquidity schemes put banks in a strong position to withstand a period of market stress and regulators have to make clearer to banks that they are free to use the liquidity buffers.
Britain's economy is suffering its second recession in four years, and the BoE and government are keen to keep credit flowing to support business investment.
Reporting by UK economics team; Editing by Ruth Pitchford