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UK banks follow US lead in tightening credit

Economic growth, Financial Events
By Paul Hodges on 13-Feb-2008


The Bank of England’s quarterly survey of corporate credit conditions, published today, shows that companies are finding it harder to get credit, and that rates are rising. This is in spite of the massive liquidity injections made by the Bank over the past 6 months, and its 0.5% interest rate cut.

The Bank says that ‘lenders reported a tightening of credit supply in Q4 and expect to tighten supply further in coming months’. Equally, as shown in the chart, the Bank says that ‘the effective rate of borrowing has remained elevated, despite falls in Bank Rate’. The Bank also worries that ‘although the effective rate on new business has fallen since its peak in August, this decline may be misleading, as it is likely to reflect the fact that as banks cut back on riskier higher-rate loans, the average rate on new lending falls’.

I noted 2 months ago that CFO pessimism was increasing in the chemical sector. This week’s reports from the Fed and Bank of England will do nothing to lighten their mood.