Thursday, 3 January 2008

Banks turn off the tap

Easy credit is the lifeblood of any bubble. No credit, then no bubble; it is as simple as that.

Today, the Bank of England published its quarterly survey of credit conditions. Every three months, the BoE goes around and asks the commercial banks how they feel about lending out money. In the most recent survey the banks told the Bank of England they plan to make far fewer loans to consumers and companies in the first quarter of 2008.

The message from the survey is all too clear - commercial banks have had enough. They've taken a long hard look at the UK consumer and they see far too much risk. UK households have taken on too much debt and default risk has skyrocketed. The housing market can go only one way - down. Handing out mortgages on overvalued property is just plain dumb.

The recent interest rate cut hasn't done much for commercial bank sentiment. The Bank of England will need to keep cutting, but this threatens to weaken sterling, which will, in turn, generate import-related inflation.

So the Bank of England is faced with a dilemma - cut rates and generate more inflation, or leave rates alone and see the economy tank.


01/20/2009 end of an error said...

You need a Bernacke, Paulson, and the Shrub to solve all your problems. Free money for everyone. How you say? Get an FHA loan for 10X earnings and let the American taxpayer pick up the tab because you are a victim.

God is it 2009 yet????

amigauser said...

Today the Bank of England published a report, that it can then use to justify cutting interest rates at the next Governors meeting

If you really think that the Bank will choose recession over inflation, especially when they can manipulate the statistics (RPI, CPI), I have a bridge I can sell you.

Anonymous said...

I don't want a bridge.
A firing squad for bankers and politicians would do nicely.