bank measures announced ( 12th jan source : dealogic. data to end - december 2007 dec 2007 ). chart 5 : mortgage arrears and possessions rates chart 6 : household secured and corporate credit availability net percentage balances ( a ) easier credit corporate percentage greater than 3 months in arrears percent household secured 0. 9 0. 8 0. 7 0. 6 0. 5 0. 4 - 10 - 20 possessions ( lhs ) - 30 0. 3 0. 2 arrears ( rhs ) 0. 1 - 40 - 50 - 60 source : cml back cast data before 1994 tighter credit q2 q3 q4 q1 q2 q3 q4 q1 reported change, past three months expected change, next three months source : bank of england credit conditions survey chart 7 : quoted mortgage spreads chart 8 : mortgage product availability ( a ) thousands basis point spread to funding rate svr credit impaired prime bank rate tracker 5 yr fixed 2 yr fixed - 50 source : bank of england. ( a ) svr mortgages spread over one month lag of bank rate ; tracker mortgages spread over bank rate ; 2 yr, and 5 yr fixed rate mortgages spread over one month lag of 2 and 5 year swap rates. feb mar aprmay jun jul aug sep oct nov dec end dec source : moneyfacts. chart 9 : household saving ratio chart 10 : correlation between growth in house prices and consumption rolling ten - year correlation coefficient between real annual house price inflation and consumption growth 16 % 14 % 1. 0 0. 9 0. 8 12 % 0. 7 10 % 0. 6 8 % 0. 5 0. 4 6 % 0. 3 0. 2 4 % 0. 1 2 % 0. 0 0 % 1970 1975 1966 1971 1976 1981 1986 1991 1996 2001 2006 1980 1985 1990 1995 2000 2005 source : ons source : bank calculations. chart 11 : commodity prices chart 12 : general public inflation expectations us dollars per barrel index, 2000 = 100 economist food index ( rhs ) economist metals index ( rhs ) brent oil spot prices ( lhs ) 3. 2 bank / nop 3. 0 2. 8 2. 6 2. 4 2. 2 2. 0 1. 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 source : datastream and bank calculations 1. 6 feb00 feb01 feb02 feb - feb03 feb05 feb06 feb07 source : bank

when the major banks wrote off about 2. 5 % of their domestic loan book and tightened credit conditions, thus exacerbating the fall in property prices and in confidence. it has been estimated that the effect of the tightening of credit conditions was to reduce uk output in 1991 by almost 2 % relative to what it would otherwise have been. 4 of course, there was little monetary policy could do at that time to offset these effects because of sterling ’ s erm membership. but the current crisis does not follow that pattern. it has come at a time when the performance of the uk economy has been unusually good. over the past fifteen years the economy has experienced the most stable macroeconomic conditions on record with steady growth, low inflation and a declining trend in unemployment. 5 for the most part the underlying balance sheet position of households and firms is robust and most indicators of financial fragility such as mortgage arrears, repossessions and corporate insolvencies are at low levels ( chart 5 ). so the question is whether we can reverse into macroeconomic trouble starting from a banking crisis with its origins in the us housing market. of course a marked slowdown in the us will diminish directly part of our exports. but two domestic transmission channels to consumption and investment will determine the size of the overall impact on our economy : • the effects of credit constraints ; and • impact on expectations and confidence. credit constraints with their own funding rates increasing and a reduction in their ability to distribute risk through securitisation, there is now clear evidence that uk lenders have begun to tighten lending conditions for households and firms. the bank ’ s credit conditions survey ( ccs ) of major uk lenders has identified a change in behaviour since the summer. 6 contrary to earlier expectations, lenders reported that the availability of secured credit to households had reduced noticeably over the three months to mid - december ( chart 6 ). corporate credit availability was also reported to have been reduced significantly over the same period. a further reduction in the general availability of credit was expected over the next three months. the survey suggests that lenders are both raising the price of borrowing and reducing the range of people and firms they are prepared to lend to. there has been a pick up in the average spread of quoted mortgage rates over the appropriate funding rate in recent months ( chart 7 ). there has also been a fall in the number of mortgage products available for creditimpaired borrowers ( chart 8 ). the