The credit crunch continues. Three charts point to the dire state of the UK interbank market.
The first chart shows the spread between 3 month interbank interest rates and the official bank rate. Spreads continue to be elevated.
The second chart again looks at 3 month interbank rates, but this time captures the spread relative to 3 month gilt repo interest rates. The spread has come down a little in recent weeks, but this is due to rising repo rates rather than falling interbank rates. Since the last peak in the spread, which was April, the repo rate is up 33 basis points, while the interbank rate is down only 13 basis points.
What about overall lending. The interbank market collapsed last August and hasn't recovered since. In fact, over the last month or so, interbank lending has actually fallen slightly.
The special liquidity scheme has failed. So, it is little wonder that the Treasury and the BoE are looking for something magical to restart interbank lending. They won't find it easily.