The shockwaves from the collapse of the US investment bank Bear Stearns rumbled through financial markets in London yesterday as the old adage that if the US economy sneezes Britain catches a cold resurfaced anew.
With the UK housing market looking shakier by the week and Britons as indebted as their US counterparts, the pound fell sharply and analysts said the Bank of England would have to cut interest rates more aggressively than it has done to date to ward off a possible recession here.
An offer by the Bank to add £5bn of fresh funding to the overnight interbank markets was nearly five times oversubscribed by panicking British banks as they scrambled for cash from Threadneedle Street because of their fear of lending to each other.
The Bank, which made a similar move last September after Northern Rock fell apart, stressed that it and other central banks around the world were monitoring the situation carefully.
Gordon Brown assured parliament that the fundamentals of the British economy remain sound while the chancellor, Alistair Darling, wrote to his counterparts in the Group of Seven leading economies urging them to redouble their efforts to introduce a new system of financial stability. |
