Short Note - British Economic Conditions
Friday 26 June 2009 at 12:11 The Bank of England’s latest financial stability report suggests that the system remains vulnerable if lending does not pick up and if the economy then starts to stall once again.
Banks globally appear to have retreated from international lending to concentrate on their own domestic markets. In the UK, lending to non-financial ‘real’ economy companies is still low and possibly still falling.
Unemployment has still not yet reached early 1990s levels by any means but it is clearly rising. Mortgage arrears are also rising, although, again, the trajectory remains unknown. Otherwise, the main economic stories remain the scale of borrowing and preparations for a new Banking Act.
The Government now appears to be taking the line that it is the powers of the FSA that should be strengthened rather than that more powers should be given to the Bank of England. The FSA will have (it would seem) a new statutory duty of maintaining financial stability.
This suggests powers being taken away from the Bank to give to the regulatory FSA. This creates genuine political debate – the Conservatives want to increase the powers of the Bank of England (which seems to be the subject of much Treasury criticism for failing to warn it of the impending crisis).
The Government is determined on a more sector-specific regulatory approach to financial stability. The expectation is that tensions will increase between Chancellor and Governor and this might explain the FSA’s earlier and pre-emptive attempt to try and indicate a more co-operative stance with the Bank.
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