Warning to banks as King hints at April cut

Warning to banks as King hints at April cut

4wallsandaceiling.com Newsletter

Source: – Simon English, Evening Standard

Nick says…

This is good news.

As expected Merv King has “hinted” at a rate drop from 5.25% – 5% (which is expected to go down further before the end of the year).

There is a delicate balancing act that he has to achieve to keep our economy on the straight and narrow, and clearly he has some work to do to keep it as such.

I’m glad I don’t have that job!

However, there are x2 points that I have pulled out of this body of writing that are refreshing.

1.    King said there were ‘two quite different policies and two separate sets of circumstances’ in Britain and recession-bound America. This, in my opinion, has always been the case… not that we can be arrogant about the situation but as a country, economically we are still in a commanding position.
2.    King said “Closer regulation of financial services is inevitable in the wake of the crunch…the pain that will be suffered by the financial institutions this year will keep minds focused on it for a number of years”. Great, bring it on.

What does this mean to us Landlords?

Financially we are in a “consolidation” period in this country at the moment, but as the year progresses and goes into 2009, in my opinion, it will get better as time goes on.

It’s not going to be as easy as it has been to find the financial products that we have been used to over the last few years, however, that does not mean that it will be impossible either. It’s just that we are going to have to work a bit harder.

Having said that because of this situation it means that “sellers”, who ever they are will be finding it tough to sell their property/ies… which is goo for us.

More importantly the knock-on effect is that, in theses conditions, rents will have a tendency to rise. My own circumstances can confirm this.

A few weeks ago we received a document from Mortgage Express, who did a survey of 2000 landlords, of which the conclusions were quite intriguing: -

1.    For rental statistics over the last 12 months 52% stated it would stay the same, 38% said it would rise and only 2% said it would be lower. (The rest were don’t know or not stated)
2.    For rental statistics over the next 6 months 33% said it would rise, 62% said it would remain the same and only 1% said it would go down (the rest were “don’t knows”)

From what this tells me is that the market place is still buoyant and confidence is still there.

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The Bank of England today paved the way for a reduction in interest rates next month but warned it will not follow the aggressive cuts seen in the United States.

Governor Mervyn King said the financial crisis has ‘moved to a new and difficult phase’ as the deepening credit crunch increases the risks of a sharp slowdown in the economy.

He said ‘Yes’ when asked by MPs on the Treasury Select Committee if the tighter lending conditions mean interest rate cuts are more likely.

Economists said King’s dovish comments suggest he could vote for a rate cut as early as April after resisting such calls this month. The Bank has already reduced rates from 5.75% to 5.25% since December.

Howard Archer, of Global Insight, said: ‘We now expect the Bank of England to trim interest rates by a further 25 basis points to 5% in April rather than in May as we had previously forecast. Further out, we expect interest rates to fall to 4.5% by the end of the year and to 4% in the first half of 2009.’

However, King was adamant that the UK will not follow the same path as the US, where the Federal Reserve has slashed rates from 5.25% to just 2.25% in recent months, including a cut of 75 basis points last week.

King said there were ‘two quite different policies and two separate sets of circumstances’ in Britain and recession-bound America. ‘This is not an economy that has ground to a halt,’ he said, adding that conditions in the US are ‘materially worse’ than in the UK.

He added that inflation is still a major concern, having hit 2.5% in February and now heading towards 3% – well above the 2% target.

King said the Bank faced ‘a difficult balancing act’ between rising inflation and slowing economic growth. ‘We are not going to lose control of inflation in this country,’ he added.

He also signalled that the era of unfettered liberalism in the banking system is coming to an end, condemning the ‘hubris’ of bankers whose bad decisions had brought crisis to the City.

‘There’s a lot of hubris around in thinking expansion of financial services was a good in itself,’ he said. ‘It’s not, it’s a means to an end.’

King said closer regulation of financial services is inevitable in the wake of the crunch. Financial institutions ‘will have to hold more capital in the longer run’, and have their activities ‘monitored more carefully’ – although he said it was not the time for ‘knee-jerk reactions’.

‘I think the pain that will be suffered by the financial institutions this year will keep minds focused on it for a number of years,’ he said.


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