Credit Crunch: Risk Underestimated
Published / Last Updated on 15/05/2008
Credit Crunch: Risk Underestimated
Chancellor Alistair Darling is under fire for underestimating the risks posed to the economy by the liquidity crisis. The Treasury Committee has told the chancellor that the Treasury may have give insufficient weight to the risks of financial market turbulence when formulating its forecast for economic growth.
John McFall, chairman of the committee says “Some of the sectors that have kept the economy growing during the past decade, including mortgages - may run into problems and the 2008 Budget fails to fully recognise this. He also said the government will have to be particularly vigilant when it comes to managing public finances from now on if it wants to maintain its record of adhering to its fiscal rules”.
Our view
We suggest that once liquidity settles in the US and UK, the credit crunch will go away. We are sure we will not return to the easy position of the last 10 years as we believe stronger regulation will be in place to prevent higher borrowing, but it will settle sooner than politicians think.
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