Further pressure has been levelled at high street banks to encourage them to lend more and get the economy back on the road to recovery, reports Times Online. The Bank of England threatened to cut the rate it pays to high street lenders. The Governor of the Bank of England Mervyn King stated that he was considering cutting the interest it pays on cash held by the banks in its reserve accounts.
The amount in these reserve accounts has increased substantially in the last year from £90.6 billion at the end of 2008 to around £157 billion in the first half of this year. King also forecasted more gloomy news, stating that the recovery would be ‘slow and protracted’, where consumers will feel the fallout for years to come.
This comes at a time when the bank stunned many by injecting £50 billion into the economy to prevent a slowdown, King states that the British economy had shrunk much quicker and deeper than his team had predicted and requires ‘robust growth’ to put it onto stable footing.
With this there has been news of rising unemployment, which had jumped to a 14-year high of 2.43 million in the last three months. King highlighted the significant role banks would have in stimulating a recovery, as growth would continue to be curbed unless banks started lending again. Lending to non-financial corporations slumped by a record £14.7 Billion between May and June this year, despite the bank’s measures to unclog the credit markets via quantitative easing.
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