There are positive signs that the UK economy is growing again, but banks must increase lending to small businesses or risk harming the econmic recovery, according Mervyn King, governor of the Bank of England.

"Following a precipitate fall in economic activity at the end of last year and the start of this, there are now signs that growth has resumed in the third quarter. Conditions for big companies to raise finance have improved significantly, but small and medium firms are still finding it difficult," said Mervyn King.

The governor highlighted a lack of bank lending to small firms, companies and individuals are focusing on repaying debt, rather than the spending and events in other countries as the three factors that could hinder an economic recovery.

The UK economy contracted by 0.7% between April and June, a real improvement on the first quarter's 2.4% fall and the UK is widely expected to return to growth in the third quarter.