video transcript

In many ways the master of the wry-smile, George Osborne had more reason that ever for it on Thursday night. In his first live television interview in 10 years, the Bank of England governor said the British government could break a key debt-cutting promise. Finance minister George Osborne had made reducing the UK's deficit one of the main pegs of the coalition governments policy over its five-year term. Mervyn King explained his reasons. SOUNDBITE: Governor of the Bank of England, Mervyn King, saying (English): "The plan did allow for the fact that if the economy were to grow slowly, then taxes would not rise as quickly, and spending would would be higher - so the deficit would be bigger, and the plan said 'don't attempt to bring that deficit down if it's the result of slow growth in the economy, and that's exactly what's happening." The Bank has intervened in its own way to try and shore up the British economy. It's midway through a four-month programme of 50 billion pounds worth of British bond purchases. It hopes to boost demand and help encourage banks to lend more to small business. But King said it was Europe and the rest of the world that outcomes hinged on. SOUNDBITE: Governor of the Bank of England, Mervyn King, saying (English): "What it will depend on, critically, I think, is what happens in the euro area and also the rest of the world. The United States is struggling a bit. Brazil and China are slowing. I think our fate, in terms of the speed in which we come out of the flat period we're in will depend very much on what happens in the rest of the world." Data released on Friday showed the budget deficit widened to the biggest on record for any August. Though the economy is expected to pull out of the double dip recession this quarter, King's interview suggests there's a long way to go yet. Joel Flynn, Reuters.