The Budget
Alastair Darling will today present the 2008 budget and it is expected that he will warn of further economic problems. It is predicted he is to report that the growth of the economy will slow from 3% to 2%-2.5%. However, Mr Darling believes that the UK economy will grow at a faster rate than any of the other major economies. Many analysts believe though that the chancellor is being over-optimistic: "The chancellor is crossing his fingers and trusting to luck," said Andrew Smith, chief economist at KPMG. "Mr Darling is betting that any damage to confidence and the housing market will be contained and short-lived, but there is clearly a risk that a downward spiral could develop," he added.
Alastair Darling will today present the 2008 budget and it is expected that he will warn of further economic problems. It is predicted he is to report that the growth of the economy will slow from 3% to 2%-2.5%. However, Mr Darling believes that the UK economy will grow at a faster rate than any of the other major economies. Many analysts believe though that the chancellor is being over-optimistic: "The chancellor is crossing his fingers and trusting to luck," said Andrew Smith, chief economist at KPMG. "Mr Darling is betting that any damage to confidence and the housing market will be contained and short-lived, but there is clearly a risk that a downward spiral could develop," he added.
In theory if the growth of a countries economy slows then the central bank will use an interest rate to spark this growth. So this budget will be eagerly awaited by analysts as if these predictions are correct and the chancellor announces that UK growth is to fall faster than expectations then we could see Sterling weaken on the back of this as the call for a further interest rate cut increases.
U K Housing Market
The Royal Institute of Chartered Surveyors reported that house prices in the UK are currently falling at a faster rate than when the market crashed in 1990. The levels of unsold properties are also reported to be increasing at the fastest pace in almost 20 years. With house prices having almost tripled in the past 10 years in some areas of the country it has become increasingly difficult for first time buyers to be able to get on the property ladder.
The Royal Institute of Chartered Surveyors reported that house prices in the UK are currently falling at a faster rate than when the market crashed in 1990. The levels of unsold properties are also reported to be increasing at the fastest pace in almost 20 years. With house prices having almost tripled in the past 10 years in some areas of the country it has become increasingly difficult for first time buyers to be able to get on the property ladder.
It was hoped by many that a drop in interest rates would be passed on to house buyers through mortgages to help make buying more affordable. However, figures released yesterday from the Council of Mortgage Lenders show that new loans for home buyers fell to the lowest level in nine years as lenders tighten their criteria for mortgages and deposit amounts being requested are increasing. This is a knock on effect from the problems faced in the States with the sub-prime mortgage market.
So as an increasing amount of properties sit unsold and it becomes increasingly difficult to borrow money it appears that house prices are set to continue to fall. As property prices decline the effect on Sterling’s value is that as less money is spent on houses the economy is likely to continue to decline which could see the economy continue to slow and again increase the chances for further interest rate cuts in the UK.
Money Auctions
Central banks, including the Bank of England, have announced another round of co-ordinated auctions to provide extra liquidity to the financial markets. The European Central Bank (ECB), Federal Reserve and central banks of the Canada and Switzerland have also announced fresh money auctions. They follow on from similar emergency auctions in December and January with the aim to cut the cost of lending between banks, which has been inflated by the credit crunch. This action may ease concerns over short term liquidity but it is unlikely to solve the longer term issues.
It will therefore be interested to see whether any of the banks take up this offer as if they do it may be an indication into how much some of the banks are struggling with the current conditions.
Oil Hits Record High
Oil Prices reached record prices on Tuesday hitting above 109USD per barrel. The sharp increase in the price of oil was attributed to the US dollar weakness recently witnessed. This weakening continued on Tuesday in anticipation of further interest rate cuts on the 18th March when the FED next meet. However, with the Sterling hitting a three month high against the dollar it may be worth speaking to your account manager to discuss your currency requirements and the best way to secure your rate of exchange.
In Other News…
A Swedish artist who wants to put a house on the moon has won the backing of his country's space agency. Artist Mikael Genberg, 44, unveiled his red-house-on-the-moon project in 2003 and has now been given the backing of the Swedish Space Corporation. Genberg said: "It's going to be an unmanned landing, and the house has to be very light, but it will also have to be sturdy enough to remain standing for thousands of years once it's up there. "The house will be contained within a package that will be sent up to the moon and once there it will turn itself into a proper structure," Genberg said of the 10 sqm cottage. He added that he wanted "to prove the impossible is possible" and boost Sweden's sense of national pride.
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