Darling: UK can weather credit crunch storm
Chancellor Alistair Darling has spoken out to calm fears the UK economy will be struck by the US sub-prime crisis and resultant credit crunch.
Following the resignations of several investment bank chiefs, including Citigroup chief Charles Prince and Stan O’Neal at Merrill Lynch, after write-offs worth hundreds of billions of pounds, Mr Darling expressed his faith in the UK economy.
“I think there’s a lot of concern about the extent of the exposure that some of the big banks, particularly American banks have, but I think two things are important to bear in mind,” the chancellor of the exchequer told BBC Radio 4’s Today programme.
“Firstly banks, and many banks in this country, have very strong balance sheets after years of making very good profits.
“Secondly the prospects for growth in the American economy, certainly our own economy and the wider world economy are good. Although as I said a few weeks ago we expect the rate of growth to slow down, the point is that growth will continue.”
He added: “We have a strong economy, its momentum will carry us through and that’s why I believe that we can get back on to the sort of growth we’ve been experiencing once we get through this.”
Mr Darling went on to explain growth forecasts for the UK economy had been dropped, but ten years of growth and strong fundamentals in the world economy should hold back any major slowdown.
“When you look around the world if you look at the prospects of growth in the emerging economies, in China and India, and even in the American economy which as the US treasury secretary has said will suffer a penalty because of what’s happening, the fundamentals are strong.
“And that’s why I believe that despite this international uncertainty which started from the problems in the US housing market, there are grounds for believing that we will get through this.”
The Lib Dems claim the resignations at the top of investment banking show the UK still faces pressures and “highlights the fragility in the banking sector caused by the American sub-prime market”.
Acting Liberal Democrat leader and shadow chancellor Vince Cable said: “There are a number of UK banks who have been dealing in sub-prime lending. Northern Rock is not the first or the last British bank which will experience difficulties.”
He went on to criticise Mr Darling for not forcing changes to the Northern Rock board in exchange for the help given.
“It is completely wrong for the chancellor to commit large sums of taxpayers’ money without imposing a change of management in Northern Rock. Other banks need to know that such irresponsible lending will not be condoned.”
However, Mr Darling told the BBC the government and the Bank of England were giving Northern Rock breathing space.
“Northern Rock has borrowed against security. In other words when the Bank of England lends Northern Rock money, the bank gets security in return. And remember Northern Rock’s balance sheet is about £100 billion,” he said.
“And in relation to what the government is doing, it is guaranteeing the depositors’ money but that money is still in the bank. In other words the government is not losing any money on that.”
“What we are doing is giving Northern Rock the breathing space it needs to consider its long term future, to have discussions with other parties that might be interested.”
