Credit crunch’s long-term effect ‘unknown’

The long-term impact of the credit crunch is unclear, according to the Finance and Leasing Association (FLA).

Helen Saxon, spokesperson for the FLA, has said that due to the crunch being an unprecedented issue in Britain, there is no historical example of how the economy and consumers will react.

“We don’t know what the lasting effects on lending and on the lending market will be. In the short term, prudence in lending has to prevail,” Ms Saxon said, adding that she expects lenders to be more cautious when considering whether someone will be able to clear debt.

Despite this, the FLA does not expect the rate cut introduced this week by the monetary policy committee (MPC) to impact consumer credit use much, suggesting that confidence is still low which will make people more determined to remain debt free.

The Bank of England’s MPC decided to cut the base rate of interest earlier this week to 5.5 per cent, a 0.25 per cent drop.