Ernst & Young: Credit crunch may benefit economy

News Article - 24 October 2007
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The recent turmoil within the credit market which has seen banks tighten their lending criteria may eventually help to stabilise the economy, according to one expert.

Professor Peter Spencer, chief economic advisor to the Ernst & Young Item Club, told BBC Radio 5 Live's Wake Up To Money programme that some parts of the economy had been "growing far too fast".

The amount of credit available was "excessive", Professor Spencer said, arguing that the credit crunch and tighter lending criteria would help to "rebalance" the markets.

"Everything that goes too high will eventually come down and this is a salutary correction which will help us to balance the economy," he added.

According to a report by the Item Club, the UK's economic growth is set to slow down as a result of recent financial conditions.

The club said that in response to these developments, it had chosen to revise its 2008 GDP forecast from 2.5 per cent in July to 2.1 per cent.

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