The deterioration in the UK housing market and the problems this has caused the banks is starting to create a vicious circle in the wider economy, according to Spencer Dale, chief economist at the Bank of England.
'The deterioration in the housing market is... likely to impact banks’ balance sheets, leading them to tighten further the supply of credit,' Dale said in the first public speech he has made since his appointment earlier this year.
'This type of so-called adverse feedback loop – in which a deterioration in the housing market and in the wider economy impinges on banks’ balance sheets and their ability to lend, which then in turn feeds back on to economic activity – already appears to be operating to some extent.'
As banks made credit harder to get, people are forced to reduce spending, Mr Dale said. He warned house prices probably had further to fall, bringing painful adjustments for many households and businesses.
Financial Times
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