Sir Mervyn King’s address at the Mansion House this evening was both heartening and exasperating.
It was heartening because the Bank has offered up a range of policy measures that could go some way to spurring lending to businesses. It was exasperating because the effectiveness of those measures could well be undermined by the governor’s relentless pessimism on the eurozone.
It is glaringly obvious how bad things are in the bloc without the governor of the Bank of England telling us that “the problem is one of solvency”, following his declaration last month that “our biggest trading partner is tearing itself apart without any obvious solution”.
That’s hardly the sort of talk that’s going to make banks want to go out and lend, or businesses borrow. As Andy Haldane, executive director for financial stability, pointed out last year, the “fear factor” in financial markets needs to be dampened, not fanned, by policy makers.
There were, however, many positives to take from Sir Mervyn’s address, chief among them the “funding for lending” scheme to provide banks with funding for a “several years” at below market rates to support their lending to UK businesses.
The details remain sketchy, but early indications are that it will work as follows. Read more