U.K. Economists Call for Immediate Rate Cut, TelegraphReports

(Bloomberg)U.K. economists urged the Bank of England to cut interest rates as a matter of urgency after the sterling inter-bank market’s fastest decline in modern times, the Daily Telegraph reported. The volume of market loans in the banking system fell from640 bln pounds ($1.3 trillion) at the start of the credit crisis to249 bln pounds by the end of September, the newspaper said.

seems these were absorbed by the banking system, much like in the US?

Tim Congdon, a professor at the London School of Economics, called for a half-point rate cut, to 5.25 %, when the central bank’s Monetary Policy Committee meets on Dec. 5, commenting that a market that’s taken 30 years to build “has completely imploded in a matter of months,” the Telegraph said. Patrick Minford, a professor at Cardiff University, wants a three-quarter-point cut, saying the committee has been “standing idly by” as three-month London Inter-Bank Offered Rate spreads shot up by 75 basis points; he described the central bank’s behavior as “highly irresponsible, neglecting a century of monetary teaching,” the newspaper said.

There was no such market a century ago, as above. What the advantage of market loans verses non market loans is to the real economy is never discussed.

If there is a real problem, it would be real borrowers no longer able to obtain credit. That’s never discussed as a reason to cut.

Peter Warburton, of Economic Perspectives, called for a half-point cut at once and a further easing in the new year, the Telegraph added.


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2 Responses

  1. “If there is a real problem, it would be real borrowers no longer able to obtain credit.”

    If you are a borrower perhaps.

    If you are a nonbank no longer able to make loans as banks have cheaper sources of credit, you might not agree.

  2. And you never would have been there in the first place had risk not been priced as it was.

    Point is, the real economy is able to borrow to fund expenditures, as even Yellen, the most dovish yet, just indicated.

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