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News - 3 January 2008
Thumbs down for the economy?

Economic gloom ahead

The Bank of England (BoE) warned today that credit to both businesses and individuals has already been restricted and the situation is likely to get worse in 2008.

BoE reported that high street banks and other lenders had "reduced materially" the amount of secured credit they had made available to consumers in the fourth quarter as a result of the global credit squeeze and furthermore they expected the situation to continue or worsen in the first three months of the new year.

Chief Economist at BNP Paribas - Alan Clarke - said "The report provides concrete evidence that the effects of the credit crunch are spreading to the wider economy including households. We view this as further ammunition for an interest rate cut in January and there is no reason to wait until February"

The BoE survey also showed that mortgage defaults were likely to increase in the coming months. Over a million borrowers are set to come off cheap fixed-rate deals on their mortgages this year and will face considerably higher interest rates and corresponding monthly repayments.

And the reports from retailers on the high street looked equally gloomy. DSG International, owner of Currys and PC World, said it had suffered poor Christmas sales and warned that its profits would fall sharply during 2008 while Next warned that it was "extremely cautious" about prospects for 2008.

In a sign of growing pressure on retailers, Next also warned that like-for-like sales from its high street outlets would shrink for the fourth year in a row next year.

DSG said sales of computers, in particular, had been disappointing over the Christmas period mainly due to competition from internet companies. It also said its profits in 2008 were likely to be £50m lower than last year which caused the retailer's shares to plunge 22%.


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