The United Kingdom, like many OECD economies, is experiencing a severe recession as a consequence of a series of global shocks and any recovery in 2010 is likely to be slow. The financial crisis has severely impaired the supply of credit and house prices have fallen sharply. Unemployment is expected to increase significantly. The large rise in the government deficit is providing support to demand, but the debt-to-GDP ratio will increase substantially. Room for additional fiscal stimulus is therefore limited. Monetary policy has eased and the policy rate has fallen to close to zero. However, the monetary transmission mechanism is impaired and financial conditions while improving somewhat remain restrictive. The Bank of England has begun quantitative easing measures, although these are more likely to be effective within a more transparent framework. Normal functioning of the financial system is necessary for the economy to recover and the authorities have implemented a wide range of measures to support the financial sector. These measures have helped to stabilise the financial system. Given the cyclical rise in unemployment, it will be a significant challenge to ensure that joblessness does not become entrenched, even if the UK labour market is relatively flexible.