Economy leaps out of recession thanks to Olympics, says NIESR

Oct 10, 2012

Meanwhile FSA relaxes capital rules to encourage British banks to increase lending and help growth

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THE UK economy is out of double-dip recession and registering 0.8 per cent growth, says the National Institute of Economic and Social Research, crediting the London Olympics for a boost to the economy. "Unless output turns down again, the recession is over," NIESR said.

But as The Daily Telegraph reports, the institute warned the underlying rate of growth was weaker, at 0.2 or 0.3 per cent. "The strength of the figure for the three months to September is largely an artifact of special events," it said.

As part of the effort to stimulate the economy into a sustained recovery, the Financial Services Authority has told UK banks they will no longer be obligated to maintain a core ratio equal to 10 per cent of their assets, a regulation introduced following the 2008 banking crisis. In effect, they will be able to meet regulatory targets without having to cut lending.

"The goal is to avoid rapid deleveraging that would harm activity in the economy," Andrew Bailey, head of the FSA's prudential business unit, told the Financial Times. The paper says the new guidelines represent a policy shift with regulators no longer just monitoring banks but also taking note of national economic concerns.

The FT calls the relaxation of the capital requirements "a bold combination of political theatre and economic theory" in which regulators have effectively called the bluff of banking groups who complain regulatory reforms have prevented them from lending. By letting banks hold less capital against new loans, and thus encourage new lending, the reforms could help tease the UK economy back to growth.

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