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More lending needed to avoid severe recession

More lending needed to avoid severe recession

Category: Loans

Updated: 06/01/2009
First Published: 05/01/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Banks may need to be forced to provide secured loans in order to minimise the effect of the recession, it has been suggested.

According to Jonathan Loynes, chief European economist at Capital Economics, the lack of credit in the market will be the biggest financial problem of 2009.

He explained that increasing the funds available to banks and reducing the base rate of interest to zero per cent may provide some stimulation, but they are measures that are unlikely to be fruitful if institutions remain reluctant to lend.

"That's the factor which can turn this from an ordinary but perhaps fairly nasty recession into something much more severe and something more closely resembling the depression of the 1930s," said Mr Loynes.

The unemployment rate for the three months up to October 2008 reached six per cent - its highest level since 1991, the Office for National Statistics has revealed.

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