Mansion House Speech – ring-fencing, Northern Rock sale and inflation

| June 16, 2011
”Mansion

At last night’s annual Mansion House speech, Chancellor George Osborne received some support for his suggestion to ring-fence banks’ retail operations so they are protected from losses from investment banking.

After the speech, Barclays Chief Executive Bob Diamond said: “Retail ring-fencing would not be our first option, but we can see ways it would work, though clearly there’s a lot more work to do on the details and the specifics.”

Mr Osborne also supported the need for higher capital ratios for the banks.

Meanwhile, the Chancellor also confirmed he will attempt to sell off state-owned Northern Rock.

The crisis-torn bank, which collapsed on the eve of the credit crisis, is expected to be auctioned off and it is hoped to raise around £1 billion.

The sale is part of a drive to boost competition in a banking sector monopolised by the big four – Lloyds, Barclays, RBS and HSBC.

The sale comes on the recommendation from UK Financial Investment (UKFI), the body which was established at the height of the financial crisis to oversee taxpayers’ interests in High Street banks.

In the meantime, Bank of England Governor Mervyn King continued to defend low interest rates, hinting that a rate hike may not be on the cards this year, as widely expected.

The Bank is under pressure to lift rates to combat soaring inflation – which is currently more than double the 2% target.

Mr King said: “The Committee is watching extremely carefully for any signs of a pickup in domestically generated inflation and it will take action as soon as it is appropriate to do so.

“So far, subdued rates of increase in average earnings, as well as remarkably – some might say disturbingly – low growth rates of broad money have provided strong signals that inflation will fall back in due course.”

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