Credit Crunch is 'Tip of Iceberg', Warns Bank of England Boss

28 November 2007

LONDON: 'You ain't heard nuthin' yet', was Al Jolson's immortal opening line in the 1927 film The Jazz Singer - the world's first talking movie. Eighty years on, Charles Bean, the Bank of England's rather less jazzy chief economist uttered similar words.

Albeit in a more sombre context.

In an interview with the Liverpool Daily Post, Bean opined that UK banks have so far reported "only a relatively small fraction of the likely losses associated with the US subprime market."

He added ominously: "It is quite likely that, over the coming months, there will be more revelations to come out, not necessarily just in this country."

The BoE, he said, is waiting to see what impact the crisis will have on the wider economy.

"What matters particularly … is the impact on the economy at large. It is reasonable to expect lenders to be more cautious in extending loans whether to households or riskier lending to businesses; maybe some mergers and acquisitions [or] the commercial property market could particularly be hit."

UK monetary policy, he said, will depend on inflationary pressure from the rapidly growing economies of China and India.

"Over the last two or three years, we have moved into a slightly less favourable external environment where the ill-effects of the development of China and India have started to be felt in the form of intense upward pressure they have been putting on commodity prices.

"Those pressures are likely to remain there for some time. The key question will be the extent to which the supply of those commodities can expand to meet the increasing demand from emerging economies.

"So the backdrop to our attempts to keep inflation in line with target is less favourable than it has been. We can always meet our inflation target through setting the appropriate monetary policy.

"But what it will mean - if the imported component of inflation is somewhat higher - is that the domestically-generated component [will need] to be somewhat lower to compensate.

"And that may mean we have to run a tighter monetary policy for a while to get that domestic inflation down."

Such words from the mouth of the famously cautious Mister Bean might prompt prudent businesses and consumers to start battening down the fiscal hatches.

Data sourced from; additional content by WARC staff