Guardian UK: City (London) heading for toughest times in a generation, says banking survey

[marmar]

City heading for toughest times in a generation, says banking survey
· Credit crunch and housing woes blamed for gloom
· Businesses lobbying for interest rate cut this week

Phillip Inman The Guardian, Monday January 7 2008


Banks and building societies expect their profits to tumble in the first half of 2008 after experiencing the sharpest fall in business since the recession of the early 90s.

City firms, especially stockmarket traders, were also gloomy, with many arguing that the next few months could be the toughest in a generation, according to a study of the financial sector.

Most finance companies blamed the credit crunch and the prospect of a housing market downturn for their gloom. Reports of expected rises in repossessions and personal insolvencies have also undermined sentiment in the Square Mile.

Building societies, which are tied more closely than banks to the ups and downs of the housing market, said they were struggling to raise funds for home loans following the credit squeeze. They also expected a steep decline in the number of new customers following a collapse in home sales in recent months.

Three months of house price falls and the promise of further declines this year have dented confidence in residential property. Most economists expect house prices to fall in 2008 by between 10% and 15% with bigger drops in some areas.

Business leaders yesterday called for the Bank of England to cut base rates by at least a quarter of a percentage point to 5.25% at its meeting this week. EEF, the manufacturers' organisation, argued a cut was needed to offset the effects of the credit crunch and to stave off the prospect of a full-blown recession.

The Bank, which fears that rising oil and utility prices will push up inflation, is expected to ignore the pleas of industry and homeowners for a rate cut. A majority of economists believe the Bank will wait until February before cutting rates again. .......(more)

The complete piece is at: http://www.guardian.co.uk/business/2008/jan/07/economy.creditcrunch