UK lenders expect 'prolonged' slump
Updated: 2008-04-01 07:46
UK banks forecast that credit market turmoil will last at least until the end of the year, twice as long as they predicted three months ago, according to a survey by the Confederation of British Industry.
Lending conditions will worsen in the next six months, leaving banks with "significantly" higher borrowing costs, according to the quarterly survey of financial firms.
"This is a very serious crisis in the financial sector," Ian McCafferty, chief economic advisor at the confederation, told reporters. "There's going to be quite some considerable time before we see improvement in the situation."
The crunch, triggered by rising defaults on US subprime mortgages, has spread into most of the world's credit markets and increased borrowing costs, threatening to deter business investment and consumer spending.
The Bank of England has cut its benchmark interest rate twice since December to spur growth.
The rising cost of capital will herald a "prolonged period of slower growth", McCafferty said. Forty percent of companies surveyed said their difficulties in raising money will hold back development, up from 24 percent in the previous quarter.
Banks also are apprehensive about rising bad debts this year, Andrew Gray, a PricewaterhouseCoopers LLP partner, said in a presentation of the report in London. "Pessimism remains, and it is still significant," he said.
Financial firms plan to reduce total spending, excluding marketing, to the lowest level in more than 15 years to offset higher funding costs, the survey said. They are also reluctant to invest in new products and campaigns to win customers.
Agencies
(China Daily 04/01/2008 page16)
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