Thursday, 6 January 2011

Credit Crunch continues for UK firms

Credit crunch is a phrase that I haven't heard used much recently.

Nevertheless, it is one that applies perfectly to the UK corporate sector. Since November 2008, UK firms have been repaying their loans to banks. On a net basis, firms have repaid a massive £75 billion.

The massive financial sector intervention was justified on the basis that it would support British firms. Perhaps low interest rates reduced corporate financing costs and kept firms from going bust. However, that sits rather oddly with the massive corporate repayment of loans.

Scratch the surface of the UK economy and nothing makes sense.


Anonymous said...

A low interest rate credit crunch.

Anonymous said...

This graph, in isolation, can be read several ways.

I suspect that:

a) some (larger) companies that can(!) are paying down their debts in anticipation of higher rates.

b) some (smaller) companies that can't borrow are struggling to keep existing repayments going and trying to squeek by.

I also expect that the moving averages on this graph could stay negative for quite a long while.

james c said...

What doesn't make sense? The private sector built up excessive levels of debt and then suddenly decided to pay it down.
The economy will struggle to grow until the private sector (and business in particular) resumes borrowing.