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Banks reduce UK household loans Bank warns on mortgage defaults
(about 1 hour later)
Banks reduced lending to UK households in the last three months of 2007 as a result of the continuing credit crunch, according to a Bank of England survey. The number of households defaulting on their mortgage payments is expected to rise over the next three months, the Bank of England has warned.
The central bank expects the situation to continue, with banks less willing to lend because of the higher cost and reduced availability of credit. Its gloomy assessment comes as it says the global credit crunch is likely to worsen into 2008, as banks become less willing to lend out funds.
Lending to business customers has also fallen sharply, the Bank's quarterly Credit Conditions Survey showed. The Bank's comments came as it said homes and firms found it harder to borrow funds towards the end of 2007.
The Bank's findings may raise hopes of a further cut in interest rates. Its findings may raise hopes of a further cut in interest rates.
The Bank's comments came in its latest quarterly Credit Conditions Survey, which covers the last three months of 2007.
It said banks were now less willing to lend because of the higher cost and reduced availability of credit.
Growth warningGrowth warning
Both secured and unsecured household lending have fallen "due to lenders reducing their risk appetite", the Bank said. Both secured and unsecured household lending fell "due to lenders reducing their risk appetite", the Bank said.
The credit crunch should push GDP growth to 2% or lower this year and next Vicky Redwood, UK economist at Capital EconomicsThe credit crunch should push GDP growth to 2% or lower this year and next Vicky Redwood, UK economist at Capital Economics
Its latest survey says that "recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply". It added that "recent financial market turbulence as well as expected changes in the cost and availability of funds, would point to lower credit supply".
The Bank last cut rates at the start of December, reducing them to 5.5% from 5.75%.The Bank last cut rates at the start of December, reducing them to 5.5% from 5.75%.
This was the Bank's first rate cut since August 2005, with its nine-member rate-setting Monetary Policy Committee unanimous in their decision.This was the Bank's first rate cut since August 2005, with its nine-member rate-setting Monetary Policy Committee unanimous in their decision.
Vicky Redwood, UK economist at Capital Economics, said the findings of the survey indicated that both consumer spending and business investment were now likely to suffer, hitting the UK economy.Vicky Redwood, UK economist at Capital Economics, said the findings of the survey indicated that both consumer spending and business investment were now likely to suffer, hitting the UK economy.
"Together with the delayed impact of previous rate hikes and the global slowdown, the credit crunch should push GDP growth to 2% or lower this year and next," she said."Together with the delayed impact of previous rate hikes and the global slowdown, the credit crunch should push GDP growth to 2% or lower this year and next," she said.
The Bank's findings also come as some analysts warn of growing home repossessions and bankruptcies this year, as the credit crunch spreads from the financial sector to hit the wider economy. "An undoubtedly weak survey, albeit expected," added George Buckley, chief UK economist at Deutsche Bank.