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Lack of credit 'could lead to 1930's-level recession'

Jan 06 2009

The lack of credit is the biggest concern facing businesses in 2009 and could lead to the recession reaching levels seen in the 1930s, one expert asserts.

Jonathan Loynes, chief European economist at Capital Economics, says the continued reluctance of the banks to lend could see the UK reach a similar situation seen in the Great Depression and Japan's more recent deflationary experience.

He states that 'it is all very well' cutting interest rates to zero per cent but other measures need to be taken to encourage more lending.

The expert asserts that forcing the banks to increase their loans may be an option.

Loynes describes the lack of credit as 'the factor which can turn this from an ordinary but perhaps fairly nasty recession into something much more severe'.

Figures from the Office for National Statistics show gross domestic product contracted by 0.6 per cent in the third quarter of 2008, with the output of production industries dropping by 1.4 per cent on the previous quarter.

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