British Credit Problem

The United States recession of 2007 effected the entire world. Through a globalized economy, all countries share in the good times and equally in the bad. The recession hurt many aspects of the economy, especially the banking and finance sector. This is discussed in an article published in the economist, "Plumbing Problems;The Flow of Credit to British Businesses Continues to Dry Up. But the Latest Policies May Yet Open the Tap." With shaky economic conditions and haunted by the terrible loan practices of the past, banks in the US and in Europe tightened lending practices after 2007. This has led to credit shortage in Britain. With many banks not receiving a good return on loans made before 2007, they have been hesitant to make new ones. This has shifted the supply of loanable funds in Britain to the left, further encouraging a "catch-22", where banks will not lend funds to businesses because the economy is bad, and businesses not able to reinvest, hire new employees, and grow because they cannot receive loans from the banks. While there has been many attempts through legislation to fix this problem, none have yet been successful. The article also highlights how the United States economy was able to rebound loans after its recession; by encouraging banks borrowing practices to return to normal, soon after lending practices rebound, which helps to grow the economy. Britain hopes to try something similar to this through the newly passed "Funding for Lending Scheme" legislation. Hopefully this will correct the problem before it is too late for the British economy.