Slower growth predicted in 2008

Thursday, November 15, 2007

The recent turmoil in the global credit markets has dominated news headlines for the past couple of months and has also been a major factor in the Bank of England inflation outlook in the last month.

The Bank of England has said that the global financial system remains vulnerable to further shocks after the losses experienced on mortgage backed securities led to weakened confidence in international markets. In its inflation report the bank said that economic growth would be lower next year even if borrowing costs fell from 5.75%.

Pressure on prices was also stronger because of soaring energy prices and a falling pound which has put inflation above the 2% target for most of next year. This is expected to settle back in the middle of 2009. The near term outlook is less benign for both inflation and growth.

The stock markets view the Bank of England cutting rates in early 2008 following the Federal Reserve downwards.

The Bank of England has said that the risks to inflation forecast were balanced but those to growth were on the downside. There is a lot of uncertainty however, regarding asset prices, consumer spending and the global economy.

Events have already taken place with the trend of tightening lending criteria to UK bad credit remortgage borrowers. This is likely to continue into 2008. If people do fall into arrears on their mortgage they do not to act quickly now, in order to stave of repossession. People are still able to secure light to medium bad credit remortgages but when people have missed 6 payments or more in a 12 month period they are likely to struggle to find a new lender.