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The problem is Osborne is not seen as looking serious enough to be in charge of the nations finances. That's the feedback I keep getting from people. It needs to be Hague of Davis. I can't see there being a change though.

It's about to go badly wrong for Brown. Vital the Tories and Cameron hammer his economic failures daily, whatever the planned 'message of the day' was to have been.

Make Redwood Shadow Chancellor - it would be the best way of publicising our case.

Good to see George Osborne on Sunday AM (or The Andrew Marr Show as it has been rebranded) giving the government a nudge about the economy. It's important not to go over the top at this stage, the economy is still actually growing. But we have to be ready with facts and figures and lines of attack for when it does got pear-shaped - for it surely will in the next year or so.

Well, as the Conservative party intends to stick with Labour's spending plans for the first few years of their (hoped-for) office, they can hardly complain about our present financial situation.

Conservatives should declare a war on debt. We should say that the proceeds of growth should be shared three ways:

One-third will go to public spending;
One-third will go to reducing public debt;
One-third will go to reducing council tax to help people pay their debts.

It looks to me that too many economic chickens are coming home to roost all at once.

After Northern Rock, today's papers are reporting that savers in their thousands are now closing their savings accounts with Alliance and Leicester, Bradford and Bingley, HBOS, and Coventry BS.

Is my money save in the Nationwide?

Are National Savings safer or the big banks like HSBC?

Any experts out there who can give sound advice?

The Tories are in a pickle on this one and can only comment. Osbornes only line of attack (and I feel a very tricky one to push) is that the Government must explain when it found these problems emerging. The Government doesnt really have an impact in this kind of situation as this is the international market which created this so demanding to know what the Government is doing about it is beside the point really. The Bank of England has done exactly the right thing in being reluctant to step in as opposed to the Fed and the ECB which has flushed the market with liquidity. If banks are being stupid with their finances then they should take the pain. Financial prudence must be restored.

Any experts out there who can give sound advice?.

No. Just read the Building society Compensation rules - 100% first £2000; 90% savings >£2000 but <£33000.....after that you are on your own.....that is per individual named on the account

The big Building society collapse was 1892 when the Liberator B S went under and the London & General Bank pulled others down after speculative lending.....but when has anyone lost money in a Building Society in living memory ?

Equitable Life is the ghost that makes everyone wary after the disaster that the Treasury left investors to bear alone

Yes, personal debt is clearly an issue, but if you look beyond this, to Britain's external debt*, you can see the real problem which is about to bear down on us.

Britain owes almost as much as America, with a fifth of their population and a fraction of their GDP.

USA $11.8 Trillion
Britain $10 Trillion
Germany $ 4.3 Trillion
France $ 4.1 Trillion
Italy $ 2.2 Trillion

(source: Joint External Debt Hub JEDH)

To put this in a political context, UK external debt, according to BoE figures, has nearly trebled since 1997.

Bear in mind that manufacturing now only contributes 19% of our GDP, but the City contributes a substantial 25%.

We are also now highly dependent on other countries for substantial proportions of both our food and energy requirements, to
the extent that we would be severely damaged should the flow of either be interrupted.

It would be nice to hear the Conservative Party's position on this when it can find time to take a break from debating whether or not the long suffering voter should be fined for shopping at their local supermarket.

*External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank.

"The problem is Osborne is not seen as looking serious enough to be in charge of the nations finances."

Yes, he's also only doing it part time, and one must really wonder at the that decision.

But though I fully support this attack on Brown, I must say it is all a bit late, for the Conservatives in failing to put a marker down sometime ago when there was evidence that things were going pear shaped with he economy, and instead I believe Cameron saying that the economy was not the issue but social breakdown, now makes the Conservatives look like they are bandwagon jumping.

Are you sure that George Osborne is doing his job part-time, Iain? My understanding was that he didn't have outside interests but I'll check that...

I agree entirely with sjm at 09.43:

"Make Redwood Shadow Chancellor"

I know that John Redwood is hardly the most charismatic performer but he does have the requisite experience for this job that Osborne does not appear to have. Osborne is very competent, I am sure, but he comes over as lightweight, the last thing you want in that job.

He should have been hammering Brown's record for months, putting up facts and figures about the wastage of taxpayers' money, the 100 tax rises, the pensions debacle etc.

Get Jeff Randall to provide the ammunition and provide a competent spokesman to get the message across.

David Cameron's comments hit the nail on the head. Gordon Brown has tried to create economic demand through debt and it has led to serious problems. Gordon Brown also has the bizarre idea that we can exist as a purely state-sector/service-sector economy with imports to meet our consumer needs. That strategy is highly dangerous, particularly if ever sterling were to depreciate significantly. Gordon Brown has promoted himself as an ecomonics guru but the reality is Gordon Brown is an ecomonics gump.

Editor, isn't Osborne also doing election co-ordinator job (or something like that) as well?

We do not have a credible shadow chancellor - we have been too late in starting to address these issues, anyone with any financial experience could have warned you about this, as many commentors on this site have, we have to be ahead of the curve! We don't need to just jump on the bandwagon - we need to be seen by the electorate of actually understanding what is happening and highlighting the consequences then we will get the electoral credit!

Osobrone is a total lightweight (and actually rather out of his depth on ecnomics - ask any serious banker who's listened to him). Blaming the Government is a relatively weak line of attack. the global credit situation and changes in the way that the UK (and other Western) economy has changed is far more relevant. The consumer expansion here is no more profound than many G7 countries, although our level of household mortgages is more significant. Since when should Government intervene in such matters anyway? Surely if the last 50 years have taught we in the UK anything it's that the Government only makes a bad economic situation worse.

'Starting to panic' might like to take up my suggestion on Ironies Too this morning to lodge his savings with the Northern Rock.

The real Chancellor actually appeared on Sky News with Adam Boulton this morning and what he refused to say was even more harrowing than the reality of Fourth Remove Osborne as Shadow Chancellor, as I report on the same posting.

Osborne started to look good when he appeared aongside Redwood. Redwood has the experience, is confident talking on matters economic and has the gravitas that youthful Osborne as yet lacks. As a pair they work well.

James Maskell 10:16
I don't think you can just blame this on the international banking system. There is a cycle in these matters: prices rise too high and the market over-reacts. We've seen it before. However, the government does need to held to account.
1. Too few houses have been built.
2. Immigration have not been controlled and these incomers naturally want housing.
3. The additonal taxes on pension funds has made buy-to-let seem a better long-term investment.

Irresponsible lending and the growth of debt - linked directly to the housing market - has been building for some time. If the Tories had picked up on this earlier they could have looked like saviours. Instead, the Tories are in bed with the likes of Kirsty Allsop whose property shows are a direct driver of house price inflation and irresponsible lending.

Cameron may have hit the nail on the head with his article in The Telegraph today, but his language is far too friendly still. Brown ought to be savaged repeatedly for the state of the nation's debts (both public and personal), neither can we go to the next election planning to spend the same amount of money as Labour have.

Talking about growth being the precurser of tax cuts is a bit of a danger too, unless the debts are repaid, spending curbed, and borrowing curtailed, interest rates will be likely to severely curtail growth.

Growth and tax revenues can only rejuvenated by personal and corporate tax relief.

My mistake, I dont think I made it clear. I agree Terry, the cycle as a whole brings this through. Well said MH re the effect of government intervention.

The sad thing about all this is that if the public didnt react in this way and withdraw its money like this, the results wouldnt be quite so bad and it could calm down better. That said, its completely understable why this reaction has occured.

The Government itself has a limited impact on this given its given a lot of control in these matters to the Bank of England.

but the City contributes a substantial 25%.

UK external debt, according to BoE figures, has nearly trebled since 1997.

The two are connected inextricably....countries with large financial services sectors - USA and UK have this problem

"The sad thing about all this is that if the public didnt react in this way and withdraw its money like this,"

Well when you have a politician telling you everything is fine, a class of people known for lying, after all they established a contract with the electorate at the last election to hold a referendum on the EU Constitution, yet now seek to renege on that contract, its no wonder that when people see Darling saying NR is financially sound, that they don't rush to get their money out. After all what was the advice the politicians gave people over Equitable?

Yes, Iain. I understand what you mean now. George Osborne is also General Election coordinator for Cameron in the same way Brown was for Blair.

Redwood for Shadow Chancellor!!

sjm at 09.43:
"Make Redwood Shadow Chancellor"
David Belchamber at 10:52
"I know that John Redwood is hardly the most charismatic performer ..."

We have had an uncharismatic Chancellor for 10 years. I don't see that charisma is a chancellorian prerequisite. Solid & dependable is better for that position.
i.e. John Redwood.

Right. Most of this debt is due to housing costs. Then the Conservatives are as responsible as Labour for this mess. Halting council house building was a mistake. A costly one at that. Unlimited immigration (from Labour)has made a bad situation worse. The Party has been complicit in ENCOURAGING people to take out mortgages they cannot afford. What makes me despair is that no-one from the party has apologised for this. Unaffordability of housing goes back to the mid 80's. Politicians being pig ignorant has made the situation worse. I really despair that we have not moved to making more council housing an ESSENTIAL plank of our election commitments.

So what's Cameron's solution? He's now going to drop green issues and focus on the economy? He will now committ to tax cuts? If so how much exactly? I'll believe it when i see it...

I wish we had focused on the economy as much as we have been focusing on green issues. People would think we were a govt in waiting.

By the way for all those critical of Cameron be careful you may get accused of secretly being a Labour supporter by some CCHQ troll. The Cameroons are getting desperate...

First, I vote Conservative mainly for economic reasons- for years, I have not experienced any Brown magic and remember being much better off under the Conservatives. However, Osborne never gets the point home and this, I personally think, is Labour's worst area (worse than the NHS ). I think Redwood should be put in charge as a matter of urgency.

Second, the FSA seems a little annoyed that people outside Northern Rock branches are not being calmed by the FSA...but the FSA stood and watched endowment holders get screwed for a decade and did nothing about it. The public have no confidence in 'watchdogs'. A Conservative government will have to restore that trust.

Simon - you are incorrect. It was not just the lack of building council houses. Simply put recently everyone has thought that houses are a one-way bet, but there has been a disconnect between affordability and prices due to massive House price inflation. London bottomed out in '92, we have had a 15 year 'bull' run. Too low interest rates ('02- to date), ignoring money supply, the consequent asset price inflation, too narrow an inflation basket and other obvious things like massive immigration into the UK since '97, the BRICs deflationary effect, the massive increase in government expenditure particularly in the the last 7 years, have all encouraged individuals and financial institutions to leverage up beyond what any sane and sensible person should do! Now we may all reap the pain, which is necessary, and quite possibly see a major correction in the housing market. For housing to become affordable you need to 'carpet' the UK, see wage inflation at a huge level or as everyone hopes a gradual clawing back via house price stagnation and 'light' wage inflation - the rosy scenario everyone is banking on, therefore it won't happen! Capitalism, will always have a cycle and we are now facing the the likihood of going into the ugly side of it, at best a slowdown in growth or more likely a recession. Alot of the classic signs have been there, excess leverage 80-100x in some financial products, 125% mortgages and mortgages based on not just 4x, but as high as 6x income. Financial insitutions do have to take blame in many areas as they chased yield and correspondingly risk, but in the end most, but not all people have a choice in what they decide.The consumer is a busted flush, particularly if we see unemployment start to rise, that is the key lagging indicator that we are heading for recession.Not a nice prognosis but 'prudent Gordon' may well reap what he has helped sow!

Those advocating John Redwood are crazy.

He frightens people. He's just too odd.

Labour will easily be able to paint him as an extremist.

He was the right man to head the Competitiveness Policy group and come up with clever, creative ideas.

He should not be shadow cancellor.

the rosy scenario everyone is banking on, therefore it won't happen!

Very true. And with food price inflation just starting to take off I think that old friend Stagflation is back to accompany us awhile

I don't think you can just blame this on the international banking system.

Ratther as Japan in the 1980s had a super business in Japanese warrants and zero rates of interest leading to an asset-price bubble; so the huge surpluses of China, Taiwan, Japan, Korea have been recycled into US, UK Government paper and kept interest rates low....so the asset-price bubble has been in Spain, Ireland, Australia, UK, USA.....all on the back of Chinese trade surpluses

I agree with you Umbrella man, and I say that as someone who admires John Redwood and his abilities.
George Osborne is the right man for the job he was given, he did sterling work shadowing Brown and I would not underestimate him.
It is Darling who lacks the gravitas and confidence at the moment to be his own man at the Treasury.

A big risk for the Labour party at the moment is the way that Brown dominates everything, if the voters lose confidence in him he does not have a cabinet with enough individual strength or presence to stop the whole pack of cards collapsing. Brown does not have the confidence to allow big characters to shine within his team. It is why he desperately attempts to woo big names from past to bolster his stature.

Cameron on the other hand has tried to balance his cabinet with experience and rising talent within the Conservative party.
Looking at the line up in each cabinet these days you start to get a feeling that despite Labour's much larger pool of MP's, they really look like they are suffering a talent shortage on their own benches. A very dangerous situation now, and for the future.

There is a very real threat the people will begin losing jobs, then homes and we will enter a real recession.

What are we talking about? Quality of Life and happy clappy indicators...

Bloody airy fairy rubbish...

Lets get back to talking about the family, jobs and economic security..

Things that really matter to "real people"...Not bloody Islington?Notting Hill metrosexuals

Here are my views on who should be Shadow Chancellor:

George Osborne - NO - not his fault but he looks too young and inexperienced to be trusted in tricky times.

William Hague - HE DOESN'T WANT IT - too many outside interests.

John Redwood - NO - too quirky and not exactly on message with the leadership.

Sir Malcolm Rifkind - YES - very solid. He's exactly the kind of bank manager type figure who would reassure people.


Osborne can still have the important job of General Election coordinator.

TomTom , quite agree - China'a currency should have been unpegged and the illusionary consumer deflationary effect would not have been so pronounced resulting in the trade surpluses not being quite so excessive,or maybe this is just wishful thinking!

Sir Malcom Rifkind - no WAY - sends shivers down most people's spines, no fault of his own, but smacks of too much of the Edinburgh lawyer. Someone with extensive financial experience, age, who understands the basis of a low tax,little regulated, flexible economy where both business and the individual can flourish under a truly independent MPC, not as the case now!

''Cameron on the other hand has tried to balance his cabinet with experience and rising talent within the Conservative party'' - Scotty.

If that's the case its a shame Cameron tries to take over and not let them get some media time. At the moment the Conservative party looks like a Cameron personality cult.

The man who said that the only role he would accept in the Shadow Cabinet would be that of Shadow Foreign Secretary and who demanded to be allowed to dictate policy on the War in Iraq, and having been offered something else went off in a huff?

Tom Tom,

The Wakefield Building Society was bought out by the Halifax after getting into difficulties over fixed interest lending, though it did not technically "Go Bust". All investors got their money in full, though mortgagors were forced to switch to Halifax variable mortgages which cost many quite a lot at the time - though peanuts by comparison today.

I agree with Scotty. It is not a question of who should be OUR Shadow Chancellor, but who we attack on the other side.

Darling is invisible and Andy Burnham a non-entity who comes across as a thug.

It doesn't matter who does the attacking, we need to create in the public mind the impression that they are not in control - as they clearly are not. Brown should be portrayed as Nero, fiddling, (trying to be PM), while the UK goes up in smoke.

The reason Labour seem to be ahead on economic policy and economic trust is because there is little or no opposition to their disastrous policies. Where is the opposition to the decimating of our pensions, to the more than ten billion pounds of waste on tax credits, to the continuous increase in the percentage of GDP eaten by the state, to the increasingly difficult factors faced by the private sector in employing people?
The shadow chancellor is incapable of mounting any meaningful attacks on Brown or his successor and clearly has no command of his brief. If he is to contend with Labour he has to have a great knowledge of detail and this is evidently not the case - witness that debate on pensions that should have seen Brown in great difficulty but saw him get a very good press - almost bizarre. I fear that Osborne is lazy in matters of detail and awareness of real problems.
Until we have a treasury team that is tough, and sure of the necessary detail needed to put the government under pressure, we will continue to be treated as second best - and that by a long way.

resulting in the trade surpluses not being quite so excessive,or maybe this is just wishful thinking!

Do you remember the Bretton Woods system ? Persistent Surplus countries were to face concerted action unless they reduced their surpluses ie. import controls

In fact the Deficit countries were repeatedly punished though they could do little but impose domestic deflation under Bretton Woods - which eventually led to the crawling-peg being abandoned as the USA was forced to devalue in order to provide ever more liquidity to world trade while Japan and Germany racked up surpluses on the back of undervalued exchange rates......they destroyed the trading system by being mercantilist

Redwood hasn't really got it right, presumably in the interests of knocking Brown. (and I've been a Tory since I was 15)

This is what happened:

Northern Rock has over ambitious management who wanted to be big boys in mortgage lending.

They didn't want to use only their depositors' cash to lend on to housebuyers -it's more expensive than borrowing in the capital markets and would limit them.

So, they borrowed heavily in the capital markets and the interbank market. By heavily, I mean really heavily - three times more heavily than the next bank and 9 times more heavily than third on the list. (neither of which is in any trouble)

The interbank market dried up and spreads blew out on NR's securitised/commercial paper funding (cap markets) as a result of no other banks wanting to lend as noone knew who had large exposures to the US subprime mess.

BoE stepped in to get NR over its cashflow crisis (and that's all it is, cashflow,so far - noone is saying their lending book is in trouble).

Run on deposits cld spark bigger crisis but next week a lot of cap marklets stuff happens that should calm it all down. It's very unfortunate because, by Friday, interbank lending had tightened considerably.

Who's to blame?
From the facts available to us currently, it's very clearly NR management. It's not actually Brown, the Bof E, Darling etc. Applegarth, the CEO, has been quite appalling in his initial non diversification of borrowing and subsequent lack of ability to deal with the fiasco that developed. This has been going on since July remember?

Northern Rock management to go asap.

by the way if we are talking about new shadow chancellors, let's be very clear that we need someone who has been a SUCCESSFUL banker/economist or who has demonstrable capability with numbers - no more Lamont style good chaps thanks.

support the strivers 18.32 - Did the FSA know the NR game plan? Would they have considered it risky? Should they have had a word with NR?

Just seen a very assured performance from Osborne on Sky news, but Fraser Nelson is less than impressed with Alistair Darlings performance on World this Week.

let's be very clear that we need someone who has been a SUCCESSFUL banker/economist or who has demonstrable capability with numbers
AS "heir to Blair", David Cameron might go for Will Hutton or Lord Levy?

A major problem that is often overlooked with debt-fuelled growth is that the interest on that debt is a massive demand for money that does not already exist, just like a wage demand, and has to be met one way or another. This creates a wave of inflationary pressure, which in turn has to be dealt with at the macroeconomic level. Gordon Brown didn't see that obviously.

TomTom, it could be argued that it was the end of Bretton Woods that lead to all the problems inherent in the British economy ever since. I seem to remember John Major saying that he was a Bretton Woods fan, or words to that effect. I certainly don't hold with the orthodoxy that floating currencies are pro-market.

Patriot @ 10.30 - 'We are highly dependent on other countries for substantial proportions of both our food and energy requirements, to the extent that we would be severely damaged should the flow of either be interrupted.'

And yet this PM continues to regard land as the free-for-all for housing, and this country as the free-for-all for whoever wants to immigrate here. The possibility that all those inhabitants of the extra houses, and the children being born of the many, many immigrants arriving every day, might actually need feeding, and require a lot more food than is around today, does not seem to occur to these socialist idealists. And if extensive inroads are made on farming land, then far more emphasis would be put on imported food, much more even than today, as Patriot suggests this would/could be a very foolhardy policy indeed!

incidentally, anyone who says it's Brown's fault that interest rates are low enough to allow the mass of consumer debt to develop misses various points.

1. he doesn't set them - our policy too these days by the way. Noone in our party is suggesting we take back control over IR. (shame in my view as what is a govt for if not economic management but anyway...)

2. he doesn't control banks' strategies - boards of directors and sometimes shareholders do.

3. globally the "spreads" at which entities borrow - ie risk weighted amount over base - were incredibly tight (ie small) so corporates could service a balance sheet that was loaded up with debt.

None of this is Brown's fault - we could attack him on other stuff though. The disgusting "quasitheft" of our money and subsequent squandering of it..errr....hold on..... we are actually promising to match his spending/wasting/squandering.

Brilliant. Not.

A propos Rifkind for Shadow Chancellor, nice chap though he may be.....

what experience does Rifkind have of running a business???? errr none.
banking - errr none
economics- errr none
dealing with numbers - errr none
what relevant university degree does he have??? errr none.....

What did he do before parliament? Edinburgh advocate.

What conceivable skills does he have to bring to the role of Shadow Chancellor???? Please please let us not make these ridiculous suggestions. It makes the party look like idiots. If Osborne goes, get someone younger in who has actually done something relevant and understands numbers.

The possibility that all those inhabitants of the extra houses, and the children being born of the many, many immigrants arriving every day
A lot of argicultural labour in this country is now being done by migrants anyway, then of course there is also the fact that food is shipped all over the globe anyway and that had started before the more recent major migrations. The days when most of the food eaten was grown locally went decades ago.

Plus, Patsy, is the oil going to run out, or be under the control of unfriendly powers. If so, we are stuffed! Makes a good case for the clean nucleur that is alleged to be coming on stream in a few years.

"incidentally, anyone who says it's Brown's fault that interest rates are low enough to allow the mass of consumer debt to develop misses various points."
support the strivers, I think that you will find that on points 1 & 2 Brown took one or two decisions which have done just that! In fact there are various articles this weekend highlighting the fact that the BoE is not quite as independent as some would have you believe.

Erm, didn't George Osborne pledge only a few days ago that a Cameron govt would continue with Labour's high spending plans for a further three years, in the interests of "stability" and in order to guarantee higher levels of spending on public services? And isn't Cameron himself now savaging these same policies as promoting instability and being unsustainable?

Do these people not talk to each other? Do they think nobody notices this sort of thing?

From today's Telegraph - note the comment about Mrs T.

""Mr Greenspan, the central banker for a number of United States presidents from Ronald Reagan to George W Bush, also says that Britain's economy is even more exposed to the financial turmoil than that of the US.

In a wide-ranging interview he also warns that:

• Inflation will pick up dramatically over the coming years, as much as doubling from its recent lows.

• Interest rates may have to hit double figures in the coming years to keep price rises at their current low levels.

• Britain must overhaul its flagging education system or risk being left behind by other vibrant economies around the world.

However, Mr Greenspan provides some reassurance about Britain's prospects in the coming decades, saying it will be one of the best-performing Western economies, thanks to the Thatcherite reforms of the 1980s and the strength of the City.""


That's not as adroite an observation as many other central bank chairmen.

For a start, we are entering the trough in this economic cycle based on a start of 2002. The UK economy missed the 2001/2 trough thanks to government spending buying growth at a time of US contraction. That's not to say there was not a recession in some sectors, Telco and IT suffered one hell of a headache at the time.

All economic cycles are driven by confidence, this is simply a lack of confidence in asset values. Which is it fair to say are in general over-priced.

Asset bubbles are notoriously difficult to predict an outcome from, there is no modern precedent for this one and I would be reluctant to agree to a broadbrush statement to say 'inflation will double'. Asset price bubbles in correction are by their nature, deflationary. This is exactly what happened in the Japan throughout the 1990s leading to their zero base rate policy.

Greenspan was alluding to our property bubble which depending to who you listen to is as much as 30% over-valued. Comparing to the US property bubble which saw 300 to 500% house price increases over the last six years in some States. Very different.

Also, the US lending market was on ridiculous lending terms, 125% mortgages were not uncommon and very high levels of property supply. In the UK it is very different, supply is not as high and the market has been driven to a degree by scarcity.

In the short term, the key worry has to be a spike in lending rates (caused by risk and passing on interbank rate increases). So expect the BoE to cut rates over the next 6-9 months. If deflation rears it ugly head, that really will put the fear of God into King and the MPC.

Thanks Mike, interesting comment. What's your view of the likely impact of our external debt over the next 24/36 months? This seems to have grown dramatically since '97 - and am I right in thinking the growth is accelerating? What's the impact of servicing $10 Trillion debt?

(My post yesterday @ 10:30)

"For a start, we are entering the trough in this economic cycle based on a start of 2002. The UK economy missed the 2001/2 trough thanks to government spending buying growth at a time of US contraction."

Mike, was listening to the Mathew Wright show on five earlier today, one caller (works in the city) said we should have had a recession back in 2002 to correct the huge credit bubble that had built up. If I understand correctly, the actions of Brown then saw off the threat, but only by increasing the problem and then kicking it into the long grass?
He says we need a real correction in the economy/markets and that we could feel some real pain.
Am I correct in thinking that many are now much more pessimistic about the long term outlook, in other words have we passed the time where a soft landing is realistic?

In the next 2 to 3 years....

It really depends on the extent of the credit crunch, if the differentials between the central bank and lenders rates becomes more pronounced then the BoE inflation target is the key economic strategy.

Gordon recently tightened that and changed the measure, that mistake will come back to haunt him. Meryvn King has repeatedly and publicly stated he has no measure of mortgage payments nor house price inflation.

That makes a more cautious BoE approach and persistently higher interest rates all the more likely.

With M0 and M4 money supply at 2x and 4x inflation, it's outlook as to be to see how the inflationary pressures in the economy play out. On the domestic economy, equity release and new mortgage applications are critical. For a soft landing, the housing market has to slowdown markedly over the next 3 to 6 months to leave room to cut rates.

The danger here is the current mortgage rate is 8%, if the BoE cut their base, there might be no incentive for lenders to lower their rate. They might seek to recoup the cost of short-term borrowing direct from customers. Bearing in mind, the traditional way banks obtain loans is through the strength of deposits.

Why should a bank offer a cheap mortgage when it really needs cash and needs to attract savers?

That could be a dangerous approach because repossessions are already rising. If consumers are finding it hard to service debts now then it points to economic slowdown at the very least as they accelerate plans to repay debts to reduce their liabilities rather than go to the shops.

The long term outlook on lending on medium term fixed rates is actually falling so expect the BoE to cut rates but not quickly. I think rates will prove to be very sticky with decreases slow to come.

It's going to hit the high street as people stay at home to service debts, unemployment from the retail sector is very likely. We aren't going to see massive growth and Darling is going to have to revise his numbers. I wager that also means lower government spending or tax increases to maintain current plans.

To soften the blow, the key thing here is productivity, getting more done for the same. Brown's red tape makes that unlikely in the short term. Without that, the economy is going to go through a period of slow to no growth.

Confidence is everything here. Judging by the queues outside Northern Rock today, the public are losing theirs.

A blind and deaf octopus could have predicted what would happen when the government made the announcement about Northern Rock.
No doubt the Bank of Scotland will benefit enormously from this. Just as they been able to almost take over our high street banks with the aid of tax payers money invested in their vaults, by Gordon Brown.

Thanks for the reply Mike.

"Confidence is everything here. Judging by the queues outside Northern Rock today, the public are losing theirs."
I don't think that it helps for the public to find out that many in the city saw this coming a while ago and reacted, while the government waited till the end of last week and Darling issued that silly statement just hours before he had to agree to bailing out Northern Rock.

John Moss said
>The Wakefield Building Society was bought
>out by the Halifax after getting into
>difficulties over fixed interest lending,
>though it did not technically "Go Bust"

The WF did get bought out by the Halifax but the catalyst was a General Manager creating false mortgage applications and pocketing the 600k of the society's cash.


Craig H

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