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Market News

December 2008

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 the 1.5% cut in November, has been welcomed by many who said the cut should help the slowing economy. Prime Minister Gordon Brown urged lenders to pass on the cut to homeowners and small businesses, however so far only a handful of lenders have passed on the full 1% cut, with Halifax in particular only reducing its standard variable rate by 0.25%.

Nationwide have announced that house prices are down 13.9% in the year to November. Halifax figures suggest that house prices are now 14.9% lower than last year. One positive note is that Nationwide’s figures indicate that the rate that house prices are falling has slowed which could signal the end of the crash.

Lloyds TSB have announced that it will keep the Halifax and Bank of Scotland brands after it completes its merger with HBOS. Bank of Scotland will be the primary brand used in Scotland, while Halifax will operate alongside the Lloyds TSB brand in England and Wales. Lloyds Banking Group will have the largest branch network in Britain. No decision will be taken about the closure of branches before the deal is completed, which Lloyds TSB expects to happen on 19 January.

Nationwide’s Consumer Confidence Index for November shows that out of the 1,000 consumers polled, 45% think the economy will be worse in six months time, compared to 38% in October. Some 49% of respondents believe there are fewer jobs available now, up from 41% last month. But the majority think they will be unaffected, with 65% saying their household income will remain the same in six months time. Consumers are also beginning to feel slightly more positive about house prices over the next six months. Consumers now expect prices to fall by 5.4%, compared to 5.6% in October.

 

November 2008

The Bank of England has cut the base rate by 1.5% bringing it down to just 3%. The cut from 4.5% is the largest cut by the Monetary Policy Committee since it was set up in 1997 and the lowest Bank of England base rate since 1955.

Gordon Brown has also met with bankers in a bid to ensure that lenders pass on this latest cut in interest rates. The Prime Minister said the Treasury and the Bank of England had taken action to help lenders and it was now the banks' turn to take the lead.

The latest House Price Index from Halifax shows that from September to October 2008 house prices fell by 2.2%. This means that £30,000 has been wiped off the price of UK homes over the last year with the average house price falling from £197,000 in 2007 to £168,000 in 2008. On the plus side, Halifax said the house price to earnings ratio, a key affordability measure, is improving significantly. The ratio has fallen by 16% from a peak of 5.84 in July 2007 to 4.92 in August 2008. This is the first time the ratio has fallen below 5.0 for four and a half years.

In its Quarterly Economic Bulletin for 2008, the Association of Mortgage Intermediaries has forecast that net lending will stay depressed in 2009 as consumer confidence remains low. The report says: “The £37bn government recapitalisation and nationalisation of the UK banks is necessary, but not sufficient, to allow borrowing between banks and by their corporate and retail customers to begin again. It adds that demand for credit has now ebbed away, so the prospect of improved supply is immaterial.

The Government is to lend £800m to the Financial Services Compensation Scheme to help depositors with savings in failed Icelandic bank Icesave. Chancellor Alistair Darling said the government would ensure no individual UK depositor would lose any money as a result of the bank's failure. The loan will go towards covering the cost of compensating those who lost their money.