FINANCIAL TIMES 2.1.09
1. Recovery forecast ‘too optimistic’
By Chris Giles, Economics Editor
Britain faces the worst economic outlook since the early 1980s, according to the Financial Times’ annual survey of leading economists, which shows considerable concern that the Treasury’s forecast of a recovery in the second half of the year is too optimistic.
The survey also shows that two-thirds of economists thought the government lacked a credible policy for restoring health to the public finances. A similar proportion thought the modest tax cuts and public spending increases to be desirable.
A large majority of the 67 economists surveyed believed unemployment was likely to rise close to 3m and that house prices would continue to fall throughout 2009.
Although only two in five thought persistent deflation was a serious risk for 2009, a majority believed the Bank of England should start this year [with?] the unorthodox policy of printing money to buy assets to ward off the threat of a more serious economic downturn.
The clear consensus among leading economists, including seven former members of the Monetary Policy Committee, was that the outlook was very troubling.
Sir Howard Davies, Director of the London School of Economics, said: “I do not expect to see any significant economic recovery in 2009. I expect the British economy to bump along the bottom, at best.”
Alan Budd, Provost of Queen’s College, Oxford, and former chief economic adviser to the Treasury argued that a significant risk was that “industrial and commercial firms in the UK and around the world will be forced to sack people and cut investment drastically in an attempt to restore liquidity”.
With such a difficult outlook, the majority of economists want the authorities to step up efforts to limit the damage to jobs and the misery of recession.
Sushil Wadhwani, of Wadhwani Asset Management, called for the Bank to follow the Federal Reserve into quantitative easing – where the authorities create money to buy gilts or private sector assets – arguing that these “are required in any case given the broken nature of the monetary transmission mechanism”.
DeAnne Julius, chairman of Chatham House, thought the government should provide further support for banks to ease lending pressures on companies.
“The UK government has been especially tight-fisted in the terms it has offered its banks for assistance. This may yet backfire,” she said. [It has already. with banks giving limited support to cheaper lending because the government’s support for them has come with a whopping 12% price tag attached -cs]
But there was no consensus on the need to throw everything at the recession without concern for the longer term.
Charles Goodhart, of the London School of Economics, and former chief economist of the Bank of England, said: “By 2012 we will be wishing that we had done [fiscal stimulus and breeching the old fiscal rules] differently. In a human society, there is no such thing as a ‘binding rule’, but fiscal profligacy will soon come to be rued.”
He, among others, was concerned that the long process of emerging from recession and tightening fiscal and monetary policy over the next decade would be extremely difficult.
=-=-=-=-=-=-=-=-=-=-=-=-
2. Credit conditions set to tighten further
By Daniel Pimlott, Economics Reporter
Mortgage approvals fell to a fresh record low in November and banks reduced loans to households and businesses in the final three months of 2008 as a deteriorating economic outlook and falling house prices deterred lending, according to data from the Bank of England released on Friday.
Mortgage approvals fell to a record low of 27,000 in November from 31,000 the month before, the Bank of England said. That was below expectations of 32,000 approvals and the lowest figure since the report began in 1999.
The Bank’s quarterly credit conditions survey also published on Friday, showed that secured lending to households – largely in the form of mortgages – tightened again between October and mid-December and by more than had been expected in the previous survey.
The data came as Halifax, the country’s biggest mortgage lender, reported that house prices were 16.2 per cent lower in the final three months of last year compared with the same period in 2007. That is the fastest pace of decline since the Halifax began keeping records in 1983 and faster than during the recession and housing bust of the early 1990s.
Halifax reported that house prices tumbled by a further 2.2 per cent in December, after falls of 2.6 per cent in November and 2.4 per cent in October. Economists had predicted a 1.7 per cent drop in December and for prices to be 16.6 per cent lower over the last quarter compared to a year before.
The Bank of England report said that secured lending was expected to fall again in the next three months, and that unsecured lending – such as credit card debt – as well as lending to businesses had also been cut in the final quarter of last year.
Demand for mortgages and remortgage loans remained broadly stable over the period, while demand from businesses for loans for capital investment, mergers and acquisitions activity, and from the real estate sector fell.
Credit availability was reduced as lenders reported that they had been affected by the changing costs and availability of funds in the period, which followed the collapse of Lehman Brothers in September and ensuing deepening of the credit crisis.
“The further significant tightening of credit conditions for both households and corporates in the fourth quarter of 2008, and the expected continuation of these trends in the first quarter of 2009, bodes ill for business activity, investment, employment, consumer spending and housing market activity. Indeed, Bank of England governor Mervyn King has stressed that ongoing very tight credit conditions pose perhaps the most serious risk to the deeply struggling UK economy,” said Howard Archer of Global Insight.
“The credit conditions survey intensifies pressure on the Bank of England to slash interest rates further,” he added [ It won’t work and will wreck savings and impoverish savers -cs]
The reduced lending to households and businesses came as manufacturing industry continued to suffer at the end of the year, and businesses laid off workers at a record pace. The Chartered Institute of Purchasing and Supply/Markit’s manufacturing barometer inched up to a reading of 34.9, from the record low of 34.5 in November.
Analysts had expected a weaker level of 33.5 but any reading below still 50 signals contraction.
Companies cut staff at the fastest rate since the survey began in January 1992. The employment index fell to 33.6, from 35.5 in November.
The continuing weak economic data increase the likelihood of further rate cuts by the Bank of England next week.
“The UK manufacturing sector is suffering hugely as it is battered by depressed domestic demand, very weak activity in key export markets, very tight credit conditions and intense competition,” Mr Archer said.
“While the substantially weaker pound is helping UK manufacturers, this is being more than offset by sharply deteriorating domestic demand in key export markets, notably the eurozone and the US.”
=======================
SKY NEWS 2.1.09
House Prices: Record Fall In 2008
House prices fell by 16.2% during 2008 [er - the 4th quarter actually -cs ..see FT above] - the biggest drop for a calendar year on record, Halifax has said.
[However The Times says “ Halifax survey shows home values fell by 19%, or £37,000, last year” - They can’t all be right - or wrong!!! -cs]
Britain's biggest mortgage lender added that the typical price of a property now stood at £159,799, back to August 2004 levels.
Halifax's figures were released shortly after it was revealed that the number of mortgages approved for house purchase slumped to a record low during November.
Just 27,000 loans were arranged for people buying a new property during the month, only a third of the number arranged in November 2007, according to the Bank of England.
Earlier, Nationwide Building Society brought further bad news for homeowners after it announced it would not pass on any further interest rate cuts to the majority of its tracker mortgage customers.
The lender plans to invoke a clause in the deals enabling it to stop reducing the loans in line with cuts to the Bank of England base rate once official interest rates fall below 2%.
It said the move, which will affect more than 250,000 customers, was to protect its savers from further aggressive rate cuts.
A spokesman for the building society said, "Savings rates are at an historic low and this move means we will not be forced into a position where we could have to cut savings rates more aggressively than we would otherwise like to."
The bottom limit on tracker mortgages was supposed to kick in at 2.75%, but the lender passed on December's 1% rate cut in full.
Nevertheless today's news will be seen as evidence that government pleas to banks and building societies to pass on reductions in interest rates were not being fully heeded. [They wouldn’t keep any savings to lend out if they did, let alone get new ones - Brown is just playing dirty politics over this - but the tabloid media fall for it! -cs]
Posts
