Thrifty Loans

The Organisation for Economic Cooperation and Development (OECD) has said that the recent turbulence in share prices were just a ‘precursor of a more protracted downturn’ in world stock markets. The FTSE 100 index has been down and up by over a hundred points on various days this week.

There was also news that only two members of the Monetary Policy Committee – which sets the Bank of England base rate – voted for a cut in interest rates earlier this month, despite the general feeling that a rate cut will be the next move.

Stock markets fell in July and August – largely as a result of the sub-prime crisis in the US, and the fears of a credit slump – but they had recovered in the main in September and October.

However, November has seen a fall of over 400 points, and the OECD said: “’Thus far, equity investors seem to have shrugged off the negative sentiment that prevailed over the summer, but it may just be too soon to draw firm conclusions.

As adjustments have often occurred in waves, and as higher funding costs take typically several months to have their full impact on companies or consumers, it may well be that the recent correction is only a precursor of a more protracted downturn.”

The OECD said that the figure for losses by banks and other financial institutions as a result of all the problems could reach £145.8bn.

The credit market turmoil has pushed borrowing costs on the wholesale markets up and up. The three month Libor – used by banks to lend to each other – went up to 6.52% earlier this week – its highest for two months.

Pressure continues to mount on the Bank of England to cut interest rates to boost the UK economy which is showing distinct signs of flagging. The news that only two members of the MPC voted for a cut in November will come as a blow to hopes for a cut.