ALEX BRUMMER: UK lenders are tied to a volatile banking universe

Fortunately, the chancellor was temporarily isolated from the volatile market world while delivering his budget.

Having restored Britain’s reputation for fiscal competence, Jeremy Hunt was able to move forward with his main goals of getting inactive citizens back to work after last year’s failed Truss-Kwarteng experiment.

If the American financial channel CNBC had been in the background, it might not have been so quick to return two-thirds of the fiscal profits accumulated since November 2022.

Hunt, along with Bank of England colleagues, encouraged HSBC to bail out Silicon Valley Bank’s UK arm for the tech industry.

But the UK, as a major financial centre, will find it difficult to escape the outbursts in the rest of the banking universe.

Hedge funds and traders are often way ahead of the authorities in detecting the weak links in the financial chain.

The alarming 20 percent fall in Credit Suisse’s stock price shows how quickly contagion from second-tier institutions, such as the SVB, can leap into the mainstream.

In the last quarter of last year, savers took £120bn from Credit Suisse. Since then there has been little to encourage funds to flow back.

Harris Associates, the bank’s largest investor, has sold its stake. Publication of the bank’s accounts was delayed by US authorities.

And a Saudi Arabian investor shows little interest in being a lender of last resort.

In the final days of Fred Goodwin’s Royal Bank of Scotland in 2008, the disgraced CEO toured the city to persuade investors to back a £20bn rights issue.

The equity was coming, but it didn’t stop NatWest’s owner from going to the government for bailout after Lehman.

Amid much controversy, the U.S. Treasury and Federal Reserve lost no time last weekend to set up a safety net under the U.S. banking system with the aim of easing panic.

This despite promises made after the great financial crisis that no bank was too big to fail.

The Swiss National Bank must act now. It will either come with an offer of liquidity or maybe even encourage a merger with UBS.

Inaction has hurt other European banks. BNP and other continental lenders become cautious about dealings with Credit Suisse at the first signs of a credit crunch.

Uncertainty has led to uncomfortable drops in European stock markets, with the bank-heavy FTSE 100 falling 3.8 percent.

Regional banking stocks are faltering in the US and major US stock indices are sharply down.

If there’s a silver lining, it’s that the market appetite for further rate hikes, on both sides of the Atlantic, is waning. There’s no point in piling on the pain when lenders pull back into technology and real estate lending for fear of rising defaults.

Doom loop

The big surprise in the budget is the speed with which economic forecasts changed.

This, along with the freezing of personal tax thresholds, gave the chancellor some fiscal leeway to try something different.

If there is one lesson to be learned, it is that far too much confidence is placed in official forecasts.

After negative growth forecasts from the Bank of England and the Office for Budget Responsibility last year and the IMF this year, opposition politicians couldn’t wait to pour scorn on the country.

They contributed to a doom loop. Yet there is observable evidence – busy airports, queues at restaurants, overflowing shopping bags and store openings – to suggest otherwise.

It will take a lot to throw Britain’s resilient consumers and businesses off course.

The latest YouGov/Cebr consumer and business confidence survey shows growing optimism in almost every category, including home prices and job insecurity.

That could all go up in smoke if banks refuse to lend to each other or, worse, to customers.

Fortunately, the doomsters are losing at this point.

Nuclear Spring

Britain has a nasty habit of allowing others to exploit our winning technologies.

The Chancellor deserves credit for recognizing the promise of Rolls-Royce small modular reactors after nearly a decade of skepticism and delays.

As part of Great British Nuclear, the government is promising to fund an exciting new technology. About time!