Downturn Action Plan

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: Nobody in London's financial circle at present knows how long the current turmoil-global financial crisis-would continue. Not only European economists but even the British Central Bank is not fully aware about the longevity of the current economic crises in the UK. Till 3-4 months ago, we seldom used the word recession to paint the prevailing scenario of the financial markets in London. Now, we use the word depression as the crisis is far more serious than expected.

Since activities of the banks in the UK are so inter-matched, with the banking sector developments in the US, there currently exists lot of uncertainties in the British financial services sector. The British government is likely to nationalise more banks in the UK to avert a major crisis in the future. This nationalisation process is likely to hamper the bank's functioning and style of operations.

The credit freeze among the banks in the UK continues. Banks are lending to our central bank, which in-turn is lending to other banks in the UK, acting as a middle-party while controlling the credit flows in the British banking space. It is the main reason why London inter-bank lending rates have gone down in the recent past.

It reminds me of the great depression the West witnessed in the early thirties. Today, nobody knows what's likely to happen tomorrow. The British government is thus throwing more money in various sectors to provide a fresh stimulus now-and-then.

The crises, that initially begun in the US housing market, has infiltrated down into various service as well as non-service sectors, including the mortgage market in our country (UK).

The Northern Rock failure happened. Credit card delinquencies are rising eventually. The seriousness of the matter is that the balance sheets of banks (in the UK) are being questioned, as they may not be currently fully revealing their mark-to-market losses. Bank of England has been thus constantly lowering its interest rates to fight these crises and even buying corporate debts in the market.

We are now sort of reaching a stage where our central bank might just stop quantitative easing-printing more money-in the short term to discourage more savings in the country.

There is a tremendous cut in demand for goods and services in the West currently. Till-date, the stimulus packages announced by the governments of European countries have not been very effective, as people are quite frightened in the European continent.