The Bank of England has recently released figures that have shown that there was a significant drop in the level of lending from UK banks to households across the UK during the fourth quarter of last year. According to the details of the report, which was the Bank of England Quarterly Credit Conditions Survey result, the level of lending in the fourth quarter of 2007 took a hit due to a number of different factors.
The report indicates that the level of lending by UK banks to both households and businesses in the UK had fallen in the last quarter of last year, with increased wariness from lenders due to the effect of the credit crunch, coupled with turmoil in the money markets as a whole, being blamed for the lower levels of lending over recent months. The Bank of England report stated that lenders had ‘reduced their risk appetite’.
The report went on to state that: “recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply”.
Some experts predict that the findings from the report will prompt the Bank of England to cut interest rates sooner rather than later in a bid to aid the slowing economy. The Bank of England cut interest rates for the first time since 2005 last month, taking the base rate from 5.75% to 5.5%. Further interest rate cuts are expected throughout this year.
One economist warned that the lending level reductions for the last quarter would inevitably impact upon consumer spending and business investment, impacting on the economy as a whole. She stated: “Together with the delayed impact of previous rate hikes and the global slowdown, the credit crunch should push GDP growth to 2% or lower this year and next.”
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