Rock recovers as US cuts interest rates
THERE were hopes that the global credit crunch which sparked the bank run on the Northern Rock would begin to ease today after a bigger-than-expected cut in interest rates in the US.
The half percentage point cut by the Federal Reserve was aimed at preventing a recession from being triggered across the Atlantic.
But it will have far reaching consequences across the world and should ease the pressure on many banks in the UK.
Stocks immediately rose in the US and financial experts predicted the UK market would also react “positively” to the news today.
All eyes will now be on the Bank of England to see if it will cut interest rates. Its next decision is due in early October.
The queues of worried investors waiting to withdraw their savings from Northern Rock branches are also sharply down.
Northern Rock said its call centres were yesterday receiving 9% of the calls compared to the previous day - 3,472 calls compared with 36,894.
And it said eight out of ten calls were to reinvest money in the bank.
Northern Rock shares also continued to climb, up 5%, after Chancellor Alistair Darling guaranteed all of the ailing group’s deposits on Monday night.
Meanwhile recriminations over the Northern Rock crisis have begun after it was reported the Financial Services Authority had repeatedly urged the Bank of England to intervene in order to avert a crisis of confidence at the firm.
Yesterday, Prime Minister Gordon Brown pledged that the Government was doing everything in its power to maintain economic stability.
“Everything that can be done will be done and is being done to maintain the stability of the economy,” he said. “We are an economy that will continue to grow, continue to create jobs, continue to have low inflation. Everything that has been put in place in the last two days is designed to ensure that.”
The Financial Services Authority (FSA) said it was now looking at ways of strengthening the system of compensation for depositors in order to prevent any repeat of the catastrophic loss of confidence which hit Northern Rock.
Financial analyst Justin Urquhart Stewart, director of Seven Investment Management, said: “This has not just been about Northern Rock. “The global capitalist banking system has to have the confidence that it can lend money to each other again.”
