The Bank of England eases credit crunch

Filed Under Finance

It looks like the Bank of England has noticed that there are a few things amiss with credit availability at the moment as it has made a significant move today to make it easier for banks to lend to each other.

As I’ve pointed out before, a credit crunch occurs when banks become reluctant to lend to each other. This reduction in credit availability cascades through the economy and can trigger a recession.

What the Bank of England has done today is make a large amount of money available for the banks to borrow at favourable interest rates. This availability of funds should get the inter bank loans flowing again, and low and behold, the threat of recession starts to recede.

So that’s good news, but how does that affect you and me?

Tomorrow (Thursday) the Monetary Policy Committee meets to decide on interest rates. As they have made billions of pounds available to banks at the current base rate today, they are hardly likely to raise interest rates tomorrow.

So it looks to me like we will have another month without a rise in interest rates and that is good news for many of us!