Consumers Made To Suffer
January 16, 2008
Banks and lenders, having been affected by the credit crunch, are squeezing credit for their customers. It was inevitable: the end consumer, be it an individual, household or business, always ends up taking the rap for the gung-ho approach of bankers out to make bigger, faster profits, and taking more risks to do so with personal loans. The latest Credit Conditions Survey from the Bank of England (BoE) shows that problems that began in US sub-prime lending will impact the man on the UK street. Output and growth are likely to come down and the outlook for jobs is likely to worsen.
The good news is that given the contents of the report, the BoE is likely to cut its base rate, possibly as early as the January review.
However, banks are unlikely to pass on the cuts to consumers, as they hold onto the money for their own cash-flow and profits. Many banks have not passed on the full interest rate cut from December in mortgage rates or loans rates.
The housing market faces two main problems: lenders are less willing to lend; and mortgage providers are concerned for a downturn in residential sales, so are holding back for that reason too.
Lack of liquidity has affected businesses already and will continue to do so throughout 2008. Private equity is also suffering as that represents a gamble too.
Reduced consumer credit will eventually mean a reduction in spending and retailers will suffer. Image of sales chaos after Christmas may have been illusory. Next did achieve better profits for the year than expected, but says 2008 ‘will be tough’. DSG (owner of Currys and PC World) says profits were short by £50m and there is talk of a closure of 200 of 700 outlets, a break-up of the group, and a reduced dividend.
The pound has slumped in value since the reduction in interest rates, taking it down to $1.97. However, for those who sell to the US it is good news and may help to start to close the UK trade deficit.
Posted in Business, Real Estate
