SPEAKING in Leeds earlier this week, Bank of England governor Mervyn King delivered a nine-page assessment of events that had led to the credit crunch, predicted that the plan to recapitalise the banking system, here and abroad, would come to be seen as the moment in the banking crisis when we turned the corner – and went on to say that the UK is probably entering a recession.

The issue for Guernsey is to what degree that affects it and how long any downturn lasts.

Mr King said that a lack of finance for the UK corporate sector and a fall in real disposable incomes from the rise in energy and food costs posed the risk of a sharp and prolonged slowdown in the domestic economy.

His comments, echoed yesterday by PM Gordon Brown, are not what anyone wants to hear and it is likely that a Guernsey reaction will have to wait until tomorrow, when the latest retail price index figures are released by the Policy Council: they could, if they remain ahead of the UK’s, top 6%.

While anything that increases the cost of doing business in Guernsey is a worry, islanders will be more concerned about how they might be affected by any recession. And the key to that is whether the people who still have wealth want it managed here.

There are many good reasons why they should, of course, and while there might be reservations whether the deposit protection scheme will be regarded as going far enough, it is a vital step in the right direction.

The other sign islanders will be watching is house prices. Unlike the UK, there is no indication of a downward trend and, while the economy and employment hold up, no reason why they should dip.

What would help, however, is for the mortgage providers to help buyers and get sale volumes up to their previous levels and get more money in circulation locally.

It is also an opportunity for the States to reassess its population approach and release some licences for the existing unfilled vacancies here – a guaranteed way to help the housing market.