Lending famine spurs fresh pound plunge

The amount of money lent in mortgages by the main High Street banks fell 23% in 2008 in spite of the fact that many smaller specialists and foreign rival lenders had quit the market. In December alone, mortgage lending was down nearly 40% on the year.

Put alongside the fact that other lenders outside the British Bankers Association shrank their lending by half, the figures showed a mortgage market in a state of near-paralysis.

Meanwhile, companies paid back a net £14 billion of loans to the banks as lenders shied from advancing new facilities to businesses.

Separately, the BBA numbers showed consumer credit was very weak in December as people reined in their credit card spending despite the sales on the High Street. Nervous consumers squirrelled more away in deposit accounts, which were up £4 billion in December.

Amid growing concerns about the state of the British and European economies, the dollar is increasing its stature as a refuge of relative safety. Analysts are moving to the view that sterling could drop as low as $1.20 in the current cycle.

Today it fell to just $1.3549 — down 1.81 cents from Friday night's close. Against the euro, the pound slipped closer towards parity again, down 1.15 cents at 1.0575.

The Obama Presidency has brought cautious optimism about America's ability to revive its banks, while on this side of the Atlantic, the outlook for the financial system remains grim.

Also weighing against the pound was the likelihood of another interest rate cut from the Bank of England next week. The monetary policy committee's arch-dove David "Danny" Blanchflower said at the weekend that interest rates were still too high.

The markets were again pricing in a possible downgrade for Britain's AAA credit rating. The premium for insuring against a default by the British government soared after dipping late last week when ratings agency Moody's said it did not see any significant worsening in Britain's financial strength.