(adds more detail, context)
By David Milliken
LONDON, June 9 (Reuters) - While surveys have pointed to some improvement in the British economy, the outlook remains highly uncertain and may not become clear until late autumn, Bank of England Deputy Governor Paul Tucker said on Tuesday.
In a speech to the Association of British Insurers, Tucker also said the market was right to assume the BoE would tighten monetary policy when the inflation outlook warranted it but stressed the need to maintain perspective.
Markets are currently pricing in interest rates rising only early next year.
"Since the beginning of the year I have felt that it will take until late autumn at least to have any kind of a handle on broadly what type of outlook we face. My view on that hasn't really changed," he said, according to the text of his speech.
"Over recent weeks near-term indicators, notably the business surveys, have improved a bit ... But a sense of perspective is needed if these apparently small steps forward are not to be frittered away. Inevitably, the medium-term outlook remains highly uncertain and the path back to anything like normality can only be gradual."
A number of indicators in recent days have been pointing to the worst being over for the British economy which shrank by 1.9 percent in the first three months of the year. In particular, one purchasing managers' report indicated the service sector returned to growth in May.
But Tucker said that he was concerned whether the financial system was capable of generating enough credit to foster recovery, given that while the reopening of high-grade bond markets had been encouraging, bank lending was subdued.
It is in the interests of the banks to get lending going again, he said. Otherwise, recovery will be anaemic at best.
The deputy governor's caution on the economy was mirrored by finance minister Alistair Darling who was quoted by the Guardian newspaper on Tuesday as saying economic data in Europe had been worse than expected.
"A number of indicators are showing confidence is coming back ... But there are reasons to be cautious. The European economy and some of its member states are hit a lot harder than we thought," Darling was quoted as saying.
NO PRE-COMMITMENT
The BoE has kept interest rates at a record low of 0.5 percent since March and embarked on a 125 billion pound programme of quantitative easing to try and boost the economy.
Tucker said that he preferred the central bank's current approach instead of committing to keeping rates low for a specific period.
"The current strategy has been consistent with a mildly upward-sloping money market curve, which signals the market is confident -- as it should be -- that the Monetary Policy Committee will retighten monetary conditions when in due course that is warranted."
Tucker, who is responsible for financial stability, also stressed the need for more resilient financial markets. The financial community must be open to more trading in core, vanilla markets going via exchanges or other well-designed platforms, he said.
"We would, for example, like to see serious consideration of whether the corporate bond markets could benefit through something along those lines," he said.
(Writing by Sumeet Desai; Editing by Ruth Pitchford)