Costly Implications for Business as British Banks’ Credit Ratings Reduced

Companies must get used to higher borrowing margins as Standard & Poors’ (S&P) downgrade the UK banking system to be on a par with Chile and Portugal. That’s worse than Italy (!!) and Belgium and a far cry from our former status shoulder-to-shoulder with France, Germany and the US.

And in announcing the downgrade today S&P warn that it could get worse unless UK government gets to grips with the structural budget deficit.

The immediate implication of today’s decision is that it will be dearer for our banks to raise the ordinary liquidity that finances so much of what they lend. I reported in earlier blogs that average margins of new and re-financed bank lending to the corporate sector had increased to 2.4% over base rate from 2% in just three months (which is a staggering 16% increase in the bank interest business overhead at a base rate of 0.5%). The battered balance sheets of our banks mean they will not absorb further increases in the costs of their raw materials…..they will pass them on through further increased margins.