Credit sqeeze continues

It now appears that the banks are starting to take action on consumer credit in the wake of the global crisis of the past copuple of weeks.

A Bank of England credit report out this morning suggests that banks will reduce their lending in the next quarter by greater amounts than they had previously forecast.

This will also apply to commercial organisations and will almost certainly lead to a rapid fall in output and consumer spending.

Whilst they will be roundly critised,the banking sector simply has little or no option as the supply of credit has dried up.This has been reflected in the increas in the rates of interest that banks charge each other to borrow money.

The Bank of England will now be under even more pressure to reduce interest rates when they meet next week and the spotlight will be on them to reduce rates by up 0.5%.