Easing in credit availability key driver of post-crisis UK - Goldman Sachs

By FXstreet.com | August 04, 2014 AAA

FXStreet (Łódź) - The Goldman Sachs team of economists suggest that the easing in the availability of credit the from the second half of 2012 onwards resulted in a strengthening of economic recovery in the UK.

Key quotes

"Most of the easing in credit supply since mid-2012 has been skewed towards the household sector and, in particular, towards mortgage lending: lending to households has picked up more sharply than lending to corporates and the average interest rate on new loans to households has fallen by much more."

"In response to this development – and with UK house prices now rising sharply – the BoE’s Financial Policy Committee (FPC) has sent a reasonably clear signal that it will limit any additional easing in the availability of mortgage credit."

"However, UK banks face strong market incentives to continue to ease the availability of credit."

"First, margins on new lending continue to rise, as a result of the ongoing decline in banks’ funding costs. Second, the recovery in banks’ equity valuations is reducing their cost of capital, implying that the expected return that banks require on new lending has been falling."

"With banks facing a significant market incentive to increase lending but with the FPC keen to ensure that there is no additional easing in the availability of mortgage credit, we expect UK banks to ease the availability of credit to corporates over time."

"Such an easing would be particularly beneficial to small businesses, which continue to report a lack of credit availability as a major constraint."

"But it remains to be seen how the easing in credit availability will be distributed across small and large firms."

comments powered by Disqus
Related Forex Analysis
  1. GBP/USD claws to 1.6100 ahead of Europe
    Forex News

    GBP/USD claws to 1.6100 ahead of Europe

  2. EUR/USD glued to 1.2755; triggers are wanted
    Forex News

    EUR/USD glued to 1.2755; triggers are wanted

  3. Asia recap: most majors are still sleeping in a ranges; JPY is weakening
    Forex News

    Asia recap: most majors are still sleeping in a ranges; JPY is weakening

  4. Gold Struggling Below $1250, SPX 500 Trying to Retake 1900 Figure
    Forex News

    Gold Struggling Below $1250, SPX 500 Trying to Retake 1900 Figure

  5. US Dollar Technical Analysis: Stalling at Channel Support
    Forex News

    US Dollar Technical Analysis: Stalling at Channel Support

Trading Center