The worst of the recession and the housing slump is probably over but Britain is set for an “anaemic” recovery with little chance of returning to buoyant growth, the newest member of the Bank of England’s rate-setting committee warned yesterday.

David Miles, who joined the Bank’s Monetary Policy Committee last month and is a former top adviser to the Treasury on the mortgage market, fuelled growing speculation that the plunge in house prices is now coming to an end.

“Expectations are crucial in the housing market and they look a bit better now than a few months ago,” he explained. “My hunch, and I put it no stronger than that, is that we have seen most of the overall, aggregate house price falls.”

Despite his caution, the upbeat assessment from one of the country’s most respected economists will be a fillip for homeowners. It comes amid a growing conviction in the City that the property market’s plunge is petering out.

But Professor Miles, who was previously chief UK economist at Morgan Stanley, offered only scant comfort to those hoping for a rapid return to robust economic conditions.

In comments to MPs on the Commons Treasury Committee, he echoed recent warnings from Mervyn King, Governor of the Bank of England, that Britain is facing a long, hard road to an economic recovery that is fraught with uncertainty.

Professor Miles said that relative to the record slump suffered by the economy around the turn of the year, coupled with soaring unemployment, “there are some signs that things have improved”.

This led him to suspect that the worst phase of the recession has now passed. But he predicted that what lay ahead was “a period of flat output, [with] perhaps some increases towards the end of the year, but really fairly anaemic growth for much of the next period”.

He continued: “The prospect of a rapid return to strong growth does not seem to be a highly probable outcome, but there are reasons for thinking that the period of the most rapid declines in output may be behind us.”

Professor Miles highlighted the continued lending drought afflicting businesses and consumers as the credit crunch persists as a critical factor hampering any recovery.

“One of the problems for the economy remains that the banking sector is essentially on life support and the ability of the banks to lend is curtailed,” he said.

His concern came as the Bank released its latest Credit Condition Survey on the availability of lending, which did little to bolster hopes that the supply of loans was easing as financial conditions improve.

Commercial banks were found to have modestly increased availability of secured loans to both companies and individuals in the second quarter, and indicated that they planned to continue to do so. Yet the report suggested that the pace of the improvement is not expected by lenders to accelerate.

At the same time, the Bank also reported that lenders continue to restrict availability of unsecured loans, with a further squeeze on this market predicted in the present quarter.

Vicky Redwood of Capital Economics, the consultancy, said that even the improvement suggested by the Bank’s report could be mainly the result of the Treasury’s new asset protection scheme, under which ministers forced the participating part-nationalised banks to make commitments to boost their lending. “Our worry is that the lending commitments add up to around only one-quarter of the rise in lending that is actually needed to ensure the economy grows at its potential rate,” she said. “Lenders may be saying they intend to make more credit available. There have been few signs yet they are actually doing it.”

Dual roles queried

MPs have demanded a rethink of the dual roles held by David Miles, the Bank of England Monetary Policy Committee’s newest external member. Members of the Commons Treasury Committee raised doubts about whether Professor Miles should be allowed to combine his part-time MPC post with being a non-executive director of the Financial Services Authority. The MPs said that the Bank and the FSA should “consider the potential conflicts and benefits which might arise”.

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