New Times,
New Thinking.

  1. Politics
13 December 2010

Reduced lending by banks affecting recovery

Senior bankers claimed that recession-hit consumers and businesses had reduced borrowing

By New Statesman

The Bank of England has warned that lenders were holding back the economic recovery by restricting credit to households and businesses, countering the banks’ claims that lack of demand was the primary reason for their poor lending figures.

In its latest Quarterly Bulletin, the Bank of England pointed out that lenders themselves were to blame for reducing the supply of new loans, mortgages and other types of credit, which was threatening to jeopardise the country’s economic recovery.

Senior bankers had claimed that recession-hit consumers and businesses had reduced borrowing, which was being reflected in the weaker lending patterns during the recession and its aftermath.

However, the report has revealed that the credit shortage had allowed banks to increase the profits they made on loans by increasing the rates of interest.

“Overall, the evidence suggests that the cost of credit rose sharply during the financial crisis, and that there was a reduction in the availability of credit, both for households and companies. It is likely that tight credit supply played a role in driving up the cost of credit,” the Bank of England said.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

Reduced access to borrowing had compelled 22 per cent of households to cut spending this year, compared with 17 per cent last year and about 10 per cent in 2007, the bank noted with concern.

“Weak lending is more likely to dampen the recovery in activity. For example, an increase in the cost of credit would push down investment spending,” the BoE further noted.

Content from our partners
The Circular Economy: Green growth, jobs and resilience
Water security: is it a government priority?
Defend, deter, protect: the critical capabilities we rely on

Topics in this article :