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May 1, 2008

BoE reminds banks to lend as credit crisis wanes

by Gill Montia

Story link: BoE reminds banks to lend as credit crisis wanes

The Bank of England is reminding the UK banking sector that its job description includes lending money and that failure to adopt a less cautious approach to lending could damage the economy.

In its Financial Stability Report published today, the central bank challenges some predictions of the damage that could be done by the US sub-prime mortgage crisis, indicating that forecasts of total writedowns of around $400 billion could be double actual losses.

In a statement released with the report, the bank’s deputy governor, Sir John Gieve, said that the most likely course ahead was for confidence and risk appetite to return to London’s money markets in the coming months.

However, the report warns that it could be months or even years before many households feel the benefit of any recovery.

Neither does the report rule out further falls in UK house prices; it suggests that highly-indebted families and buy-to-let investors are at significant risk during the months ahead.

Unfortunately, the prediction that the credit crisis is losing its grip could be bad news for interest rates because it weakens the case for reducing the base rate in May.

 

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