Credit Market Analysis by Lloyds TSB

It has been just over a year since the credit crisis started, when problems in the US subprime mortgage sector led to a loss of confidence in the wider financial markets.

Financial market strains remain in place…

It has been just over a year since the credit crisis started, when problems in the US subprime mortgage sector led to a loss of confidence in the wider financial markets. Banks which had been able to move subprime and other assetbacked securities off balance sheets have found risks flowing back onto balance sheets. As a result, banks have been less willing to lend to each other and have tightened lending standards to companies and individuals.

…but scope for further policy easing has diminished

In the past year, central banks have responded to weaker growth prospects by cutting interest rates. However, rising food and energy prices mean that there is now no further room to support growth by easing policy further. US interest rates are likely to have bottomed at 2% and the BoE has little room to cut rates below 5%, while the ECB increased rates to 4.25% in July. In any event, cutting rates has not narrowed spreads and has not therefore had the usual boost
to the economy.

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