UK recovery at risk if banks don’t lend – govt


Reuters | Sun Jul 18, 2010 | 2:35pm IST

Britain’s economic recovery is at risk of being undermined by the lack of bank lending to businesses, Business Minister Vince Cable said. Since exiting recession in the last quarter of 2009, Britain’s recovery has been sluggish, growing just 0.3 percent in the first three months of the year, and bank lending, particularly to small firms, has remained subdued. "We could have a second credit crunch if we don’t get credit flowing, there is a real danger that growth in the economy could be undermined," Cable said in an interview with the Independent on Sunday newspaper.

"It’s what I hear most from the businessmen and women I speak to, that the flow of credit and lending to business is still weak. Demand is already depressed, and the danger is that the lack of lending could depress it still further." The government is working on new measures to get credit flowing, Cable said, but it must also find ways to redress the bias towards taking on debt and try to get more equity funding into business. "We are still identifying new measures, but it’s important because the effects of quantitative easing will soon be wearing off," he said.  

Britain needs to rebalance its economy, boosting high-tech manufacturing industry and reducing its reliance on the financial sector, Cable said, and while the outlook is "gloomy", the government is taking steps to make Britain more competitive, such as lowering corporation tax and reducing bureaucracy. But simply pumping more money into the economy in a bid to artificially get it moving again would risk encouraging another housing bubble and would "only lead to another disaster", he said. "What we are doing is tricky; we must encourage growth and rebalance the economy in a healthy way and geographically. It’s going to be a difficult trick to pull off."

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