UK at risk of Japan-style deflation - papers

Britain is at risk of sliding into a Japan-style period of deflation, according to a Bank of England policymaker.

He also warns the UK may be even worse-equipped than Japan to escape such a scenario.

Adam Posen, a member of the Bank's Monetary Policy Committee (MPC), said Britain and the US were unlikely to face repeated recessions, the Telegraph reports.

But in many ways their plight was "scarier" than Japan's, said the renowned Japan expert.

In speech at the London School of Economics, he said: "The UK worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had."

He also warned the banking system's continued troubles would undermine companies' abilities to raise funds, and pointed out businesses already appeared to be hoarding savings - something which happened in Japan.

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LIBOR rises on Eurozone debt fears

The cost of borrowing dollars in the London inter-bank lending market rose to its highest level for nearly 10 months amid fears of the banks' exposure to the European debt crisis, the Telegraph reports.

Three-month Libor rose above 0.5% for the first time since July last year as analysts said traders were concerned banks could face another liquidity problem due to the sovereign debt crisis.

The sterling rate also rose, while the euro rate fell, according to data from the British Bankers' Association.

Analysts from Credit Agricole warned in a note: "The money markets are saying that while banks currently have a liquidity buffer, this will run out in three months."

Traders have, in recent days, become increasingly nervous about the health of the banking system, which has translated into more volatility.

The failure of a relatively small savings bank in Spain yesterday caused markets to fall on both sides of the Atlantic.

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