Bank cuts UK rates to 57-year low

The Bank of England has cut interest rates by one percentage point, from 3% to 2% - the lowest level since 1951.

The move, which followed a dramatic cut in November, has been welcomed by many commentators who said the cut should help the slowing economy.

Prime Minister Gordon Brown has urged lenders to pass on the cut to homeowners and business.

So far, only a handful of lenders have said they will pass on the cut in full to standard variable rate mortgages.

There has been no news yet for savers, with banks and building societies saying their savings rates are "under review".

"If the banks pass the interest rate reduction on, and I hope and believe that they should do so, then it's of benefit to homeowners and businesses right across the country," Gordon Brown told BBC Radio 5 Live.

HSBC , Bristol & West, and Lloyds TSB, which also owns Cheltenham and Gloucester, have said their standard variable rate mortgages would be cut by the full one percentage point cut.

You could almost hear the sigh of relief up and down the country Hetal Mehta, Ernst & Young Item club What the cut means for you Which lenders have passed on cut? How low will rates go?

While Skipton building society said they would pass on a cut of at least 0.95 of a percentage point.

Royal Bank of Scotland and Lloyds TSB/Cheltenham & Gloucester will also pass on the rate cut to their small business customers, they said.

Before the interest rates decision, Halifax said its customers with existing tracker mortgages, that follow moves in the Bank of England's Base Rate, would benefit in full from any cuts.

This was despite a clause in the Halifax's paperwork which would have allowed it to put a limit on the cuts it passed on to mortgage customers.

Economic turmoil

Rate of interest slashed again

Commenting on the reaction to the Bank's latest interest rates cut, BBC economics editor Hugh Pym said: "There wasn't quite the shock value of the dramatic one-and-a-half point reduction in November.

"But we shouldn't forget the scale of the Bank of England's action. The cost of borrowing has been more than halved since early October, as the Bank got to grips with the rapid decline in confidence and spending."

Earlier, there was further evidence of the rapidly slowing economy in the UK:

• House prices fell 2.6% between October and November - their sharpest monthly drop since the housing market crash of the 1990s - according to the Halifax.

• New car sales in November fell 36.8% on the year before - the steepest decline in nearly three decades according to the Society of Motor Manufacturers and Traders

• Homewares retail chain The Pier - which has 31 stores and 17 concessions across the UK - was placed in administration. It employs about 400 workers.

Central banks across Europe also cut rates in an effort to stem the economic decline.

The European Central Bank cut its key interest rate to 2.5% from 3.25%, the biggest reduction in its history.

Denmark's central bank also lowered its main interest rate by three-quarters of a percentage point, to 4.25%.

Earlier on Thursday, Sweden's central bank cut interest rates from 3.75% to 2% - a bigger-than-expected reduction.

'Bold but necessary'

This latest dramatic move by the Bank of England means that its Bank Rate is now at its lowest since November 1951- a year which saw the Festival of Britain and Winston Churchill become Prime Minister again.

ALSO IN 1951... January-June, Korean War saw heaving fighting across the 38th parallel May, King George VI opened the Festival of Britain October, the Conservatives won the general election The average house cost £2,100 A loaf of bread cost 6d (2.5 pence)

Hetal Mehta of the Ernst & Young Item Club said: "You could almost hear the sigh of relief up and down the country."

"Anything less would have been a missed opportunity. The Bank has given the economy the right medicine at the right time."

"Manufacturing and services surveys this week have confirmed that the recession is gathering momentum. At the same time, commodity prices have collapsed and inflation is set to fall dramatically, the dire prospect of deflation is becoming more likely."

Graeme Leach of the Institute of Directors welcomed the Bank's decision, calling it "bold but necessary".

The British Chambers of Commerce (BCC) said that because of worrying signs that UK activity was falling sharply, it was "critically important" the the Bank to persevere with "aggressive" rate cuts.

"There is a clear danger that unemployment will increase even more dramatically without urgent counter-measures," said David Kern, of the BCC.

HAVE YOUR SAY

Brilliant, once again the sensible savers get kicked in the teeth

Jason Jones, Birmingham

Send us your comments

And he strongly urged the Bank of England's monetary policy committee to cut interest rates by at least a further half a percentage point at its January meeting.

Stephen Robertson of the British Retail Consortium said: "This is exactly the type of decisive action we need during these uncertain times. With the threat of inflation fading, the Bank of England is right to concentrate on jump-starting the economy."

source: bbc

link to the original post:
http://news.bbc.co.uk/2/hi/business/7764741.stm


Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net

Fears That a Weakened British Pound May Grow Weaker

LONDON — Could the British government’s plan to borrow and spend its way out of a recession lead to a run on the pound?

George Osborne, the Conservative Party’s spokesman on such matters, warned of just such an outcome this month, and Peter Mandelson, the Labor government’s business secretary, accused him of being “reckless and irresponsible.”

In the last few days, Mr. Osborne again accused Prime Minister Gordon Brown of driving Britain toward bankruptcy, but he avoided any mention of what one of the biggest borrowing surges in British history might do to its already fragile currency.

All the same, a feeling is building that Mr. Osborne may have a point. The pound, already down more than 26 percent from its high of $2.11 a year ago, could fall further once the economy begins to feel the strain from the increased debt.

“Any economy with our level of borrowing and our deficit of trade should have one of the world’s weakest currencies, not the strongest,” said Peter K. Hargreaves, chief executive of Hargreaves Lansdown, an independent brokerage firm in Bristol. “We don’t make anything anymore, and our biggest export was the City of London, which is in disarray. We are in a very poor state.”

Mr. Hargreaves sees the pound falling to $1.25 — it was at $1.54 on Friday — and he has recently moved £20 million into United States Treasury bills and instruments denominated in, among other currencies, the Norwegian krone.

“I just don’t think this country understands how serious the problem is,” he said.

Britain has a deep, emotional connection with its currency, the world’s oldest still in use. Crashes, when they come — as they did in 1967, 1976 and 1992 — have been viewed as moments of wrenching national shame.

The pound’s buoyant decade under Mr. Brown’s predecessor, Tony Blair, came to be seen as a lush emblem of Britain’s financial and popular resurgence. Middle Eastern and Russian billionaires accumulated British assets, and American investment bankers, once happy to be paid in dollars, schemed to see how they might manage to secure their bonuses in pounds.

Now, unemployment is rising, house prices are falling and economic growth is a faraway hope. Britain is seen as having relied too much on volatile sectors like housing, finance and retail. The numbers paint a stark picture: Britain’s public debt is expected to double to more than £1 trillion by 2012 — or about 60 percent of its gross domestic product.

Still, when it comes to the currency — the ultimate barometer of an economy’s health and future prospects — few forecasters have predicted an outright collapse. In fact, after touching a recent low of $1.48, the pound has rallied, lifted by the government’s stimulus plan, which includes cuts in the sales tax and £3 billion in capital spending. Government officials said in the last week that the steep income tax increases built into the program, aimed at high earners, were there to assure currency markets that these high debt levels would not be permanent.

According to Bloomberg News, the average forecast by City economists for the pound at the end of 2009 is $1.62. It is $1.66 for 2010.

Of course, currency forecasting in the midst of a historic financial crisis is an imprecise art. And such estimates do not square with a growing pessimism about the pound’s future that can be readily heard from the salons of West London to the trading desks of investments banks, where a popular bet has become when, as opposed to if, the pound might hit parity with the dollar.

The last time sterling came close to parity was February 1985, when the currency dipped below $1.10, with Britain hobbled by labor unrest and a recession.

“Parity is not impossible,” said Theo Casey, an investment strategist at The Fleet Street Letter, a financial newsletter that has been forecasting the collapse of the pound since August. “We are this tiny island dependent on finance and housing. We are crashing and it will continue.”

His newsletter foresees a return to past sterling crises, most notoriously the one in 1976, when Britain had to seek a bailout from the International Monetary Fund. According to Mr. Casey, such dire prognostications have hit a chord: newsletter subscriptions have risen more than 30 percent since its call on sterling.

Willem H. Buiter, a political economist at the London School of Economics, points out in his widely read blog, Maverecon, that there are two factors in this crisis that were missing during previous sterling reversions.

The first is that the pound now floats freely, making it more vulnerable to the whims of speculators. The second is the added burden of a devastated banking sector.

These elements are joined by the one common cause of past currency panics: a bet made by currency speculators that the highly leveraged British state will become insolvent.

“A sterling crisis would not be something highly unusual, if your idea of the distant past is not the market trader’s last month,” Mr. Buiter wrote recently, voicing sympathy for Mr. Osborne’s warning that the Labor plan might ruin the pound.

source: nytimes.com

link to the original post:
Fears That a Weakened British Pound May Grow Weaker


Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net

First-time buyers paying the price as banks demand bigger deposits

Photo: Graham Turner

What's the price of entry into the housing market for a first-time buyer? The answer: a deposit of at least £20,000 - which is why so few people are now buying. If you want one of the best mortgage deals on offer, you are probably looking at having to rustle up a £50,000 deposit, or even more in London and the south-east.

While Alistair Darling this week claimed his pre-budget package of support for housing would "help the homeowners of tomorrow buy their first home", there was nothing in his speech to assist first-time buyers to overcome the substantial obstacle of stumping up a hefty deposit.

Latest Council of Mortgage Lenders figures show that the average first-time buyer is putting down a deposit of 16% of the value of the property - which equates to a whisker under £20,000 in the case of a typical £124,400 property being bought by a first-timer.

However, a review of the home loans on offer this week reveals that banks and building societies are reserving their best rates for customers with a 40% deposit. Based on the above example, that translates into £50,000: not a problem for some homeowners looking to hop on to a new mortgage deal but impossible for all but a minority of first-time buyers. That £50,000 figure is for the UK as a whole; it would be much higher in most of London and the south-east.

However, there are many who say that now is not the time for first-time buyers to be wading into the property market because house prices probably have some way further to fall. Sitting on the sidelines may be the best course of action. But some will feel they have waited long enough.

At first glance, the mortgage rates on offer at the moment do not look too bad. HSBC is offering a base-rate tracker deal - which follows the ups and downs of the Bank of England base rate - at 3.99%, while Abbey and Alliance & Leicester have two-year fixed rate deals at 4.49%. But in both cases, the maximum loan is 60% of the property's value - which means the buyer must put down the other 40%.

"If the borrower has a 20% deposit, rates rise to 5.99% for trackers and to 6.45% for fixed rates. If the borrower only has a 10% deposit, then there are no trackers and the lowest rate for a fixed deal is 6.45%," said Francis Ghiloni at the home loans website mform.co.uk.

The mortgage landscape has changed dramatically in recent months, and among those affected the most are those who can only manage a very small deposit, or none at all. All the remaining 100% mortgages were axed earlier this year, and there is little, if anything, available for those who have a deposit smaller than 5%.

Another problem facing first-time buyers is the greater caution of banks hit by the credit crunch about whom they take on as customers.

Meanwhile, some lenders are clamping down on low-cost "interest-only" mortgages, which many people have turned to in the past as a way of affording high property prices. With these, customers pay interest on the loan but do not pay off any of the capital debt - which means much lower monthly payments.

Earlier this year, Abbey said interest-only borrowers with "a proven repayment vehicle in place" would be able to borrow up to 75% of a property's value, while those without evidence of a repayment vehicle would be limited to 50%.

source: the guardian

link to the original post:
http://www.guardian.co.uk/money/2008/nov/26/first-time-buyers-homes-mortgages


Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net

What is in store for offshore banking?

Chas Roy-Chowdhury

In the pre-Budget report (PBR) the chancellor made quite a low key comment.

"The government will shortly commission an independent review of British offshore financial centres," he said.

He also made it clear that the UK would not be held responsible for any sums held in the offshore bank accounts, in the same way as it is for the amounts held at UK on-shore bank accounts.

One wonders what is behind all this.

The review will not consider changes to the UK's constitutional relationship.

It will though look at the role of British offshore financial centres in the global economy, and in particular

• financial supervision and transparency
• fiscal arrangements
• financial crisis management and resolution arrangements
• and international cooperation.

What is the problem?

First off, what are these dependencies and territories?

With the transparency will come a greater flow of information about all things to do with tax.

Well they clearly include the Channel Islands and the Isle of Man.

But what about the more exotic locations such as the British Virgin Islands, the Cayman Islands and Bermuda?

The governments of these three jurisdictions did not issue press releases supporting the review, unlike Jersey, Guernsey and the Isle of Man authorities who did.

But it certainly would not make any sense, if the UK government is trying to take stock of its obligations, for one or more of these offshore jurisdictions to end up in the lurch like Iceland.

Therefore, once the full scope of the review is announced, it will almost certainly seek to look at all the locations where, for whatever reason, the UK government might end up being pushed into guaranteeing the savings of UK citizens.

More than meets the eye

But I think there is also more to it than this. There are probably two other very clear cut agendas behind this exercise.

First, the government will wish to ensure that whatever new regulations emerge from the embers of the current crisis for banks and financial institutions, these offshore jurisdictions are fully signed up to it.

And it will also wish to ensure that the new framework has a great deal of transparency built in to it.

Most importantly, along with the transparency will come a greater flow of information about all things to do with tax.

The government must be keen, as a spin off from the banking crisis, to ensure that UK tax payers do not use off shore jurisdictions to evade paying UK tax.

While the review itself is not specifically about tax, but about government obligations, it will almost certainly seek to enforce tax compliance as an offshoot of the work.

More demands

In the brave new world after the banking crisis, much taxpayers' money will have gone to keeping banks afloat.

We are about to enter interesting times in the offshore banking sector

Governments in the UK, US, other parts of the EU - and many other countries around the world - will no longer tread softly when seeking information from the banks in offshore jurisdictions about its taxpaying, or perhaps insufficiently taxpaying, citizens.

I also think if those demands do not receive a swift response, then the UK and others will work much more in co-operation with one another to obtain what they are after.

I think in any case we are about to enter interesting times in the offshore banking sector where transparency is the name of the game.

But at the end of it all, the mainly Western governments who are seeking information from the off-shore centres may find that their taxpayers were actually being much more honest than they were giving them credit for.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

source: bbc

link to the original post:
http://news.bbc.co.uk/2/hi/business/7748803.stm


Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net

Darling to slash VAT and spark Xmas spree

Alistair Darling will make a high-risk bid to lead Britain out of recession tomorrow, when he is expected to cut VAT and entice the British people to go on a pre-Christmas spending spree.

The move by the Chancellor and Gordon Brown won the support last night of Charles Clarke, one of the Prime Minister's most high-profile critics, a sign that the economic crisis is at last uniting Labour and focusing minds on the battle against the Tories. With high-street stores slashing prices to attract customers, Darling will offer help with his pre-Christmas price cut in an attempt to limit the collateral damage from the global financial crisis.

The cut is expected to see the rate drop from its current level of 17.5 per cent for at least a year - and possibly for as long as two years.

Last night, as Darling put the finishing touches to the most important financial statement of Labour's 11 years in government, there was speculation that he might slash the rate to 15 per cent, a move that would cost the government about £12.5bn a year.

Such a move, certain to be interpreted as evidence that Brown is preparing for a possible election next year, is seen by the Prime Minister as essential to help the economy ride out the severest economic downturn for generations.

Darling is also expected to announce an extension of the £2.7bn giveaway announced in the summer to buy off Labour rebels opposed to the abolition of the 10p income tax rate. The original rebate, worth £120 a year to basic rate taxpayers, was due to come to an end next April, but the Chancellor is likely to carry it over for at least another year. There could also be wider changes in personal tax allowances to take many low earners out of paying tax at all, as well as plans to speed up infrastructure projects to help salvage jobs in construction. In an interview with the Sunday Mirror, Darling today promises help for 'every household' so people can 'get through the difficult period'. He also promises support for householders with mortgages and those facing redundancy. 'Worried mortgage holders will get help and I shall do what I can to help those who lose their jobs.'

The public sector, he says, will be asked to spend less. 'In these difficult times the public sector will, like the rest of the country, be tightening its belt.'

There was also speculation that Darling could help motorists by postponing plans to increase vehicle excise duty on the most polluting cars.

With the financial markets nervously waiting to see how Brown and Darling intend to pay for the measures, the Prime Minister received a significant boost last night when Clarke, a former Home Secretary, finally buried the hatchet and lavished praise on his former political enemy over his handling of the economic crisis.

Ending one of the bitterest feuds at the top of the Labour party, and in a sign of how it is now united behind its leader, Clarke, who only in September called for Brown to shape up or quit, told The Observer that the Prime Minister had shown 'genuine economic and political leadership at a time when it was both desperately needed and difficult to do'. He said: 'It's been a real surprise to me but Gordon's economic self-confidence has made him more decisive on the political front.' The PM had listened to his critics and had 'earned the right to support'.

'I think that, since the Labour party conference, he has done really well in meeting the challenges of the world financial and economic crisis,' said Clarke. As a result, he said he felt Brown could lead Labour to a fourth consecutive general election victory.

'Winning the election, particularly in the marginal seats in the south east, remains a really tough call, but Labour is obviously back in the race and can do it.'

City economists said a VAT cut was 'psychologically attractive', as it would encourage people to spend when times were hard and could easily be withdrawn later.

The government's deficit will balloon to way above £100bn next year, but the Treasury hopes to reassure the City about the long-term health of the government's finances by announcing detailed plans to increase taxes and squeeze public spending, once the recession is over.

Britain's approach of plunging deeper into the red to pay for a short-term economic support package was echoed in the United States, when President-elect Barack Obama promised to save 2.5 million jobs with a two-year stimulus plan.

'There are no quick nor easy fixes for this crisis, which has been many years in the making, and it's likely to get worse before it gets better,' said Obama. 'But 20 January is our chance to begin anew, with a new direction, new ideas and new reforms that will create jobs and fuel long-term economic growth.'

In a speech to the CBI annual conference tomorrow, Brown will defend his own 'fiscal stimulus' plan, insisting that a 'new approach is now needed if we are to get through this unprecedented global financial recession with the least damage to Britain's long-term economic prospects'.

This weekend, the Conservative party launches a nationwide campaign aimed at highlighting its view that Brown's '£100bn borrowing binge' will mean higher taxes in the long run. Poster vans warning of a 'tax bombshell' - the same phrase the Tories successfully deployed against Labour in the 1992 general election campaign - are being used in London and in busy shopping areas across the country.

George Osborne, the shadow Chancellor, last night accused the Prime Minister of conning the electorate with tax cuts that would have to be paid back. 'Only the Tories will deliver lower taxes that last,' he said.

source: guardian.co.uk

link to the post:
http://www.guardian.co.uk/politics/2008/nov/23/pre-budget-report-vat-tax-cuts

Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net

Glut of unsold homes hits rents

Life is now getting harder for landlords as rents start to fall A glut of unsold homes has flooded the rental market, driving down rents at the fastest rate on record. The Royal Institution of Chartered Surveyors (Rics) said new instructions to sell flats and houses had been at record levels in the past few months. However, Rics said many people who cannot sell their homes have decided to let their properties, and this increase in supply has pushed rents down. The proportion of surveyors reporting lower rents was its highest since 2003. Quick change The past year has seen a dramatic turnaround in the UK property market because of the international banking crisis and the credit crunch. Frustrated vendors are placing their property on the market to let Royal Institution of Chartered Surveyors The latest quarterly Rics survey - for August, September and October - shows that the difficulties people have had in buying and selling homes have spilled over decisively into the rental market. With the supply of mortgages, sales and house prices all falling fast, many would-be vendors have decided to let their homes instead of selling them. "Frustrated vendors are placing their property on the market to let as they have been unable to agree sales due to a lack of demand in the housing market," said Rics. The turnaround for potential landlords and tenants has been swift and the number of homes available to rent has boomed. The proportion of Rics members who, looking back over the previous three months, reported more instructions to sell properties then fewer instructions, was 68% for houses and 50% for flats. As a result, the number of surveyors who said rents were now falling outstripped by 12% those who said they were still rising, the first fall in rents since 2003. This was a big change from the previous Rics report in August which had shown that 31% more surveyors were reporting that rents were still rising. London and South East The region most affected by the sudden change in the rental market has been London and the South East. That part of the country is heavily dependent on the financial services industry and has seen a swift rise in unemployment. Unlike the rest of the country it has also seen a slump in demand from potential tenants. "Tenant demand growth in the South East came to a virtual halt, while in London, demand actually contracted outright," said Rics. The effect was to drive down rental levels, with 53% more Rics members in London reporting a fall in rents for houses than a rise, and 33% more reporting a drop in rents for flats. source: bbc link to the original post: Glut of unsold homes hits rents Fort Lauderdale Blog and Real Estate News Rory Vanucchi RoryVanucchi@gmail.com http://waterfrontlife.blogspot.com www.FortLauderdaleLiving.net