BOE warns of further “shocks” from crunch

Source: Exec Digital UK

Date :25/10/2007 08:57:20

The Bank of England has warned that the UK is still “vulnerable to further shocks” from the recent global credit crunch.

In its latest twice-yearly financial stability review published today, the central bank said British sub-prime borrowers could encounter problems obtaining credit as banks face higher borrowing costs.

According to the bank the impact of the crunch may not be fully apparent, citing that the commercial property sector, where prices are already falling, being 'particularly prone to further shocks and to rises in the cost of finance.'

A renewed squeeze "could expose fragilities among a small, but growing, cohort of more vulnerable borrowers, such as UK 'sub-prime' borrowers and highly leveraged companies, including those that have been the subject of recent buyouts," the bank said.

Vulnerability

The Bank says the vulnerability to new shocks depends to a large extent on whether banks rein back lending or act as if business has gone back to normal.

Although central bank said ``there have been signs of recovery'' in money markets, the interest rate that banks charge each other for three-month loans hasn't returned to the level before credit costs surged on August 9.

In its report the bank also warned that markets are now more susceptible to a potential slump in global stocks or a slide in the dollar.

Overall UK banks have had to fund an estimated £147 billion of mortgage-backed securities, company buyouts and other debt vehicles that previously would have been sold to other investors, the report said.

October 25 2007