In a previous post, we saw how bank lending in the UK fell during the credit crunch, contributing to the length and depth of the recession. Because of this the Bank of England and Government have sought to try and increase bank lending – in order to help stimulate economic growth.
Fall in bank lending.
These are some of the different policies that have been tried.
1. Cutting Interest Rates.
In March 2009, the Bank of England cut interest rates to 0.5%. Lower interest rates makes borrowing cheaper. This should increase the demand for bank lending as firms and consumers are more willing to borrow rather than save. In normal circumstances, a cut in interest rates probably would increase bank lending.