Mervyn King’s words today, in the Financial Stability Report, are probably more
important to the UK economy than George Osborne’s on Tuesday. As James points out in the magazine this week, Osborne’s plans could well turn out to be irrelevant if the eurozone collapses,
flattening whatever is left of Britain’s growth prospects.
Basically, King feels that, thanks to the euro crisis, we’re all headed for a credit crunch. This echoes Downing Street’s sentiments yesterday. He says UK banks are well capitalised but should still boost their reserves – not by withholding loans to businesses, but by cutting dividends and bonuses. He also offered one interesting nugget at the press briefing: he said he spearheaded yesterday’s dramatic move by six major central banks to increase liquidity in the global financial system.
As Reuters says:
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