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Economist comments on bank lending

The rise in inter-bank rates - which could have worrying consequences for bad credit loans and other quick loans holders - has been commented on by a leading economist.

Libor - the rate at which banks lend to each other - has recently risen, a sure sign of the continuing credit crunch.

Lenders made nervous by the amount of 'bad debts' on other firms' books has become less likely to transfer funds than before, pushing the rate up.

In recent months, this has had a knock-on effect on the high street, with loans firms tightening their lending criteria for consumers in a similar way.

As a response to this, the Bank of England provided financial support for kick-starting lending on the market last December and this January, in the form of cheap loans.

However, economist at New Star Asset Management Simon Ward claimed that this financial assistance has now been exhausted - and that banks remain nervous.

"Banks now appear to require a further injection of funds to finance ongoing credit expansion," he said.

"As in January, such action would probably be effective in lowering inter - bank rates at least temporarily, but at the cost of a semi-permanent increase in banks’ reliance on official funding."

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