The Money Stop

A recent report has shown that there was a significantly lower level of lending to households from banks in the UK during the fourth quarter of last year. The information was released by the Bank of England, and officials from the Bank of England have put the drop in lending levels down to a number of different factors. The data came from the Bank of England’s Quarterly Credit Conditions Survey result.

The report stated: “recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply” Amongst the factors that have been attributed to the drop in lending in the final quarter of the last year are higher inter-bank charges, which have reduced liquidity amongst financial institutions, and increased concerns amongst lenders with regards to defaults, which has resulted in more lenders rejecting applications for credit in the wake of the credit crunch.

It was thought by some experts that the Bank of England would cut interest rates in January as a result of the report, but the Bank of England left the base interest rate unchanged at 5.5%. It is widely expected, however, that the interest rate will fall in February, and that there will be a second interest rate cut before the summer. Some experts are predicting that interest rates will fall three times over the course of the year, and that the end of the year could see rates settle at 4%.

According to one industry professional the reduction in lending levels for the final quarter of last year would have an effect on consumer spending as well as investment in business. 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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