Cheap Credit A Thing Of The Past

(Reuters) – BORROWING COSTS are unlikely ever to fall back to pre-crisis levels, a fact that businesses are getting used to, Bank of England policymaker Kate Barker was quoted on Friday as saying.

‘I think most people are starting to realise that finance is never going to be quite as cheaply available as it was in the years prior to the crash. Businesses are becoming more realistic about what they can get,’ Barker was quoted as saying on the website of the Flintshire Leader newspaper.

Many firms have been finding it hard to raise credit, even though the Bank has slashed official interest rates to a record-low 0.5%.

And while the central bank’s £175 billion asset purchase programme has helped bigger businesses by alleviating strains in the corporate bond and commercial paper markets, many small firms still struggle to raise cash.

But the impact of the downturn on the wider economy had been limited in part by employees’ willingness to accept changes to their working conditions, Barker said after addressing businesses on the border between England and north Wales. ‘There has been lots of flexibility in terms of wages and that can only be a good thing,’ she said. ‘We are not seeing as many house repossessions because people are still having some work and are able to get through.’

Rising unemployment and a slump in house prices had led to fears there would be a wave of home repossessions; but the number of people who lost their homes fell slightly in the second quarter compared with the first.

Asked if the Bank should have started cutting rates sooner to shore up the economy, Barker said: ‘With 20:20 hindsight we probably should have cut rates earlier; but I don’t think it would have made a big difference.’

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