Despite £175bn of quantitative easing, bank lending in the UK remains weak. This threatens to restrain the economic recovery and equity market rally, according to Legal & General Investment Management (LGIM) Economist James Carrick.

Carrick explained that policy makers in the developed world have been working overtime to encourage banks to lend at the ‘normal’ levels experienced during the past decade.

However, Carrick argued these ‘normal’ levels are no longer realistic.

He said: “The factors which contributed to the secular rise in debt over the past decade are now reversing. Populations are ageing, interest rates can’t go any lower and sub-prime lending is over.”

As a result, Carrick explained that higher levels of savings (where consumers pay down debt) and lower spending will weigh on the pace of the recovery.

Legal & General is therefore not predicting a double-dip recession. Instead Carrick described a more subdued period of growth next year as households are unable to borrow to spend money they don’t have and unemployment remains high.

“On the flip-side, while consumers in the developed world are still suffering a hangover from the credit-crunch, the debt party in many emerging economies is still in full swing. This suggests that companies with exposure to the developing world will fare better,” Carrick said.

He did however fail to mention the implications for these companies, and indeed the global economy, when the debt party there collapses.