05/01/2009 - Threat of worsening credit crunch
The worsening economic outlook will prompts further cutbacks on lending by banks and building societies, according to a Bank of England report.
It says that firms are expecting the credit crunch to bite harder during the first three months of 2009, despite recent measures to recapitalise the banking sector.
In its quarterly Credit Conditions Survey, the Bank says that the failure of Lehman Brothers meant the reduction in secured credit during the final three months of the year was greater than previously forecast. "As in previous surveys, concerns about the economic outlook and falling collateral values had contributed to tighter availability of credit.
"Over the past three months, lenders reported that changing costs and availability of funds had borne down on credit availability. Further declines in credit availability were expected over the next three months."
Bank of England Governor Mervyn King says frozen credit markets will be one of the biggest threats to the UK economy in 2009. Economists said the report will increase pressure on the Bank to slash interest rates further next week, possibly from 2% to 1.25%.
Copyright © Press Association 2009
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