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Britain heads for slowdown as credit crunch bites
Published in Saudi Press Agency on 06 - 12 - 2007

It's official: The British economy is slowing down.
In a desperate attempt to halt the slide, the Bank of England slammed
on the emergency brakes Thursday with its first bank rate cut in over
two years - to 5.5 per cent, according to dpa.
The step was seen by analysts as a welcome short-term confidence-
boosting measure, but few believed that it will allay the underlying
jitters and uncertainties that have gripped the City of London since
the start of this summer's credit crunch.
"It's not enough, but it's a step in the right direction," said
one analysts, predicting that a further interest cut will follow
early in the new year.
"The bank's cut will alleviate the pain a bit before Christmas,
but it will do little to prevent banks raising their borrowing rates
for individual and business customers, in an effort to repair their
own profit margins," said one analyst.
While fears over inflation, a sustained fall in the all-important
housing market and signs of a slowdown in consumer spending are all
seen as worrying signs, analysts point out that the reasons for the
current economic wobble in Britain are linked to a fundamental change
in global markets in the wake of the US sub-prime lending crisis.
"The effects of the credit crunch will continue to be felt keenly
over the next year, and this remains a major threat to the economy,"
said Edmund Conway, the economics editor of the Daily Telegraph.
"Conditions in financial markets have deteriorated and a
tightening in the supply of credit to households and businesses is in
train, posing downside risks to the outlook for both output and
inflation further ahead," the Bank of England said in a statement
accompanying the rate cut decision.
Millions of consumers who have thrived on the culture of easy
credit and accumulated debt at unprecedented level, now find that
lenders have become more cautious and debts harder to pay off.
Bank of England figures show that an estimated 12 million adults
in Britain had personal loans of 162 billion pounds (333 billion
dollars) outstanding in November, which equates to 7,000 pounds for
every household in the country.
And as surveys confirm a sharp slowdown in consumer confidence,
and a reluctance to spend at Christmas this year, recent research
revealed that an estimated 4.4 million Britons are still paying off
credit card debts they ran up last Christmas.
"With lenders getting tough that is not a good position to be in,"
said Sean Gardner, chief executive of financial website
MoneyExpert.com.
Mervyn King, the usually cautious governor of the Bank of England,
did not mince his words when he warned recently that Britain is
facing an economic slowdown that would be the toughest in a decade.
Putting investors on high alert for a sharp fall in share prices,
King said the period ahead would be marked by slower growth, rising
inflation, a weakening housing market and a falling pound.
The period of turmoil on international money markets was far from
over, King warned, adding that there was "worse to come."
Following billions of write-offs announced by leading British
banks, and the Bank of England bailout of mortgage lender Northern
Rock, the central bank has said that it would provide 10 billion
pounds in emergency funds to Britain's commercial banks in an attempt
to prevent a severe worsening of the credit crunch over the Christmas
period.
"These are testing times as a result of the instability in
financial markets. No country can insulate itself from its ups and
downs," a spokesman for Prime Minister Gordon Brown said.


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