Threats that the economy will be in the grip of a deepening downturn before the end of the year are mounting, the Organisation for Economic Co-operation and Development said yesterday, The Times reports.
Interest rate cuts may soon be needed to shore up Britain’s growth as financial turmoil combines with the toll on the high street and housing market from past rate increases, the Paris-based think-tank for rich nations said.
Despite a robust showing by the economy so far this year, the Bank of England should now be ready to act to underpin activity, the OECD argued, as a spate of new figures showed further signs of worsening prospects.
THE EUROPEAN CENTRAL Bank lent €3.9bn (£2.7bn) at its penalty rate on Wednesday, signalling that money markets may still not be providing enough funding for the European banking system, according to The Independent.
The amount lent to one or more anonymous borrowers was the highest for almost three years. Use of the facility costs 5 per cent, a point higher than the ECB's benchmark rate. The rate banks charge each other for three-month money in euros rose to a six-year high of 4.79 per cent yesterday, indicating that the credit crunch is still making Europe's banks wary of lending to each other.
The US Federal Reserve added $38bn (£19bn) of temporary reserves to the banking system, using four repurchase agreements. The American commercial paper market contracted for the seventh week in a row but at a slower rate, indicating buyers are starting to return to the market. Buyers of commercial paper fled in August after losses mounted on US sub-prime mortgages that backed the short-term debt issued by banks and other companies.
ROYAL BANK OF Scotland moved yesterday to complete the financing for its involvement in the takeover of the Dutch bank ABN Amro with a record-breaking €5bn (£3.5bn) fundraising, The Guardian reports.
The fundraising was eight times oversubscribed, with bids amounting to well over £25bn, suggesting that the turmoil in the credit markets may be easing for high-quality deals.
The bank was able to sell five tranches of bonds across four currencies in the largest ever fundraising of its type. There had initially been fears that the recent tightening in the credit markets and the general loss of confidence among investors exacerbated by the problems at Northern Rock would leave RBS struggling to raise the necessary funds.
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