Good News Among The Gloom
Bad news for inflation forecasts and gloomy predictions for further banking problems abound. However, boom and bust has always been part of the economic cycle. Despite the misery, some lenders have been cutting their fixed mortgage rates in recent weeks.
Good news is hard to find in the UK economy at the moment. Barclays Capital’s quarterly survey revealed an expectation for inflation to reach 4.8% in 2010, which is well above the 2% target. Kenneth Rogoff, the former IMF chief economist made the gloomy prediction that the worst is still to come for the international financial crisis, suggesting that more banks would go under before the economy recovers from the credit crunch. Bank of England new deputy governor Charles Bean also painted a bleak picture, warning earlier this week that the global slowdown is as bad as it was in the seventies and is likely to drag on for some time.
However, it should be noted that fluctuations in the economy are perfectly natural and have always been the norm. As Chancellor Gordon Brown wanted to put ‘an end to boom and bust’, but he was up against the natural laws of the economy. Stability may be a good thing to strive for, but if you get rid of bust you also dispense with boom. Sadly, when recessions come about financial problems are handed out fairly and it is the needy who suffer most as companies close and jobs are lost. Some people say that the economy needs its downturns to flush out the inefficient firms and, in doing so, release resources to allow new companies to start up so the economy can continue to grow.
In the mortgage market there has been some good news. Last week a number of lenders cut their fixed rates after Halifax had done the same the week before. Now the biggest UK lender, Abbey cut its two and three year rates by up to 0.25%. Cheltenham & Gloucester did even better with a 0.31% reduction. The reason they can do this is that Swap rates – used by banks to lend to each other – have fallen by around half a percentage point in the last month.
It is encouraging to find some good news among the gloom. It is hoped that more competitive products will be introduced to the market this week.
