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Base rate cut could be on the way
The Governor of the Bank of England hinted that the base rate could fall again. Mervyn King said that the lack of lending by banks to consumers and businesses was the most important factor in the current climate of frozen credit and low lending levels to borrowers.
A Treasury Select Committee of cross party members heard Mr King say “I am in no doubt that the single most pressing challenge to domestic economic policy is to get the banking system to get lending in any normal sense. That is more important than anything else at present”. He suggested that UK banks could have their capital adequacy rules relaxed to help ease lending conditions.
He has also refused to rule out full nationalisation of the banks and he warned that a continued reluctance from banks to lend would lead to a deflationary spiral and that they economy would shrink with inflation lowering. He also championed Alistair Darling’s Pre Budget Report saying that he felt the measures seemed reasonable given the “extraordinary circumstances”.
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