Banking sector stabilizing, but economy isn't

Banking sector stabilizing, but economy isn't


The recent news of recession, inflation and rapidly rising levels of unemployment has sparked new fears over the health of the economy and sent share prices tumbling again. 

Yesterday the FTSE took a £75 billion battering, which ended the FTSE 100’s recent recovery following the £37 billion bailout of the banks. The Footsie closed yesterday 7.16% down, marking one of the largest losses of all time.


While banks ended the day looking in a better state than previously thought, mining companies suffered losses of up to 25% amongst worries that the demand for metal was declining.


Various economists have warned that we are seeing the comedown after the high of the multi-billion pound rescue plan earlier this week and that while the banking sector may be improving, the overall economy isn’t.


Even worse, with governments gathering up debt in order to help the financial system, this could in turn create a bigger problem of an economic slowdown.


On a positive note, borrowing costs between banks are finally showing the first tentative signs of responding to the bailout. Libor rates decreased from 6.25% to 6.21%. While this is a step in the right direction, it is still substantially higher than the Bank of England’s official 4.5% interest rate. Senior strategist at BGC Partners, Howard Wheeldon, commented: “It will take a very long time before we are back to anything like the norm.”

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