Why no plan B, Mr Osborne?
Robert Peston has an excellent post on the BBC outlining the risk of a second credit crunch as the Bank of England support for UK banks is unwound.
“According to the Bank of England, is that banks need to refinance or replace up to £800bn of term funding and liquid assets over the coming 30 months. The Bank of England estimates that simply to replace this finance, British banks need to sell about £25bn of new bonds and asset-backed securities every month. Here’s the troubling news: what’s required is 66% more debt issuance per month on average by banks than actually took place during the boom years of 2001-7. And banks are currently issuing (selling) less than half the debt that’s needed.”
That’s the kind of thing that can derail a recovery. And George Osborne and the Treasury were well aware of it as the Governor of the Bank of England has been warning that the Special Liquidity Scheme will be removed on schedule since February. So why was there nothing in the Budget acknowledging this risk and outlining a contingency plan for such circumstances?
I’ve heard it said that this was never on the cards because it would have sent mixed messages to the markets and the country. I can understand that judgement. But it might prove costly, both for the Government and the country, if we do get another recovery-wrecking credit contraction and bank bailout.
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