LONDON (Reuters) - Policymakers need to make sure tightening credit conditions don’t kick off a vicious circle which slows the economy and then engenders even more difficult borrowing conditions, Bank of England policymaker Paul Tucker said on Thursday.
“On the financial-real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other,” he said, according to the text of his speech.
Tucker noted that households and companies were already facing tighter borrowing conditions following the credit crunch taking hold of global financial markets.
He said that he had considered voting for an interest rate cut at the November meeting of the Monetary Policy Committee as rates at 5.75 percent were probably “mildly restrictive” but then decided against it, as publication of new forecasts would give more time to explain any cut.
The Bank cut interest rates last week to 5.5 percent and while minutes of the meeting will not be published until next Wednesday, Tucker’s comments gave little indication he opposed the move.