The credit crunch continues

We are still experiencing a crunch in credit - when will it end?

The financial crisis, which began in 2007, is often described as the "credit crunch". The evidence, however, is that the crunch in credit only really began in 2009 and shows no sign of abating.

For many the financial crisis became real when queues of depositors were filmed outside Northern Rock on 14th September 2007. However, Bank of England credit data reveals that the credit crunch really began in the middle of 2009 and in a very dramatic fashion. It was then that many sectors of the British economy witnessed such a dramatic fall in credit that nearly three years on credit levels remain significantly below their peak.

Credit in many sectors fell off a cliff edge in the second quarter of 2009 after years of continual growth. The sectors in the table above all witnessed dramatic falls in credit in the middle of 2009, although real estate saw a more pronounced fall about a year later.

What is even more worrying is the fact that, in many sectors, credit levels have continued to fall.

The data in table 2 begins where that of table 1 finished and gives bimonthly credit figures from March 2011 to March 2012. Credit in these four key sectors has continued to fall. Of most concern are the falls in credit to manufacturing and financial intermediation firms. The manufacturing sector produces the majority of Britain’s goods exports and firms in this sector rely on credit to invest in capital. Furthermore, trade credit helps firms reach foreign markets. The fall in credit to firms involved in financial intermediation is both a symptom and a cause of the problem and is evidence of the weaknesses that continue to plague the British banking system.

The final table indicates the severity of the credit crunch. Interestingly the crunch that began in the middle of 2009 was of a similar magnitude to the contraction in credit since the end of 2010. The data suggests that, far from the crunch relaxing, it continues and with previous falls the problem is compounded.

The picture is not the same for all sectors; lending to individuals secured on the value of property or similar asset has returned to, and in fact risen beyond, pre-crisis levels. The hotels and restaurants sector did not witness a significant fall in credit during the crisis. Nevertheless credit constraints continue to affect many important sectors of the British economy and there is little indication that this situation will change any time soon. Given this, it is hard to argue that the worst is behind us.

What time is it? Time to make it easier to get credit. Photograph: Getty Images

Selling Circuits Short: Improving the prospects of the British electronics industry by Stephen L. Clarke and Georgia Plank was released yesterday by Civitas. It is available on PDF and Amazon Kindle

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.