Newspaper article The Evening Standard (London, England)

Confidence Lost on Black Friday

Newspaper article The Evening Standard (London, England)

Confidence Lost on Black Friday

Article excerpt

THE LONDON stock market has hit new lows today amid continuing volatility, while interbank lending rates remain stubbornly high.

Amid uncertainty as to how far the US Treasury will follow the UK in offering equity to recapitalise major banks and if so, how quickly it has become clear that the $700 billion Paulson plan and Federal Reserve support in money markets have not so far succeeded in restoring investor confidence at a time of wider fears of recession.

What is needed now is easier money, within a co-ordinated international framework including Chinese participation to manage the effects on currencies.

That must be the priority at this weekend's meetings of the International Monetary Fund and World Bank.

Here, it is time for a cut in interest rates beyond the half-point reduction to 4.5 per cent earlier in the week.

Rate cuts helped shares recover after the 1987 crash and 9/11.

They are needed again now.

With energy and commodity prices shrinking, policymakers must realise just how much the outlook has changed and accept that deflation, not inflation, is at the top of the worry list.

In the City, there are doubts over how far the major banks will make use of the ?25 billion offered by the Treasury on what are expensive terms for existing shareholders.

However, even if government stakes are limited, national debt is bound to rise sharply.

Gordon Brown made much of wanting to limit the figure to 40 per cent of GDP. Now, even the Government's statisticians are puzzled about how to treat the new level.

And although the Chancellor, Alistair Darling, likes to emphasise that the taxpayer has purchased assets that may yet yield a good return, the risks are considerable.

The wider impact of recession on tax revenues, particularly from the City, and on welfare spending is still to come. …

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