The Crystal Ball Remains Cloudy

January 9th, 2008

U.K. house prices rose for the first time in four months in December as the Bank of England cut interest rates for the first time in two years. The average cost of a home in Britain climbed 1.3% to £197,039 from a month earlier.

The central bank cut borrowing costs by a quarter of 1% last month to shield the economy from the effects of the collapse of the U.S. subprime housing market. While policy makers may leave interest rates unchanged tomorrow, analysts expect the Bank of England to cut its benchmark twice this year as growth slows.

Martin Ellis, chief economist at HBOS, said in a statement, ‘this mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market. House prices are predicted to be flat during 2008.’

This uncertainty and mixed data continued with a report from the Royal Institution of Chartered Surveyors late last month that said lower house prices and interest-rate cuts will lure the first-time buyers who had been shut out of the market in recent years, preventing a slump in the property market.

Tighter credit conditions may nevertheless limit a rebound in property values. U.K. banks plan to make fewer loans to consumers and companies in the first quarter, according to the Bank of England’s quarterly survey on credit conditions, published last week. The bank forecast in November growth would slow to about 2 percent this year from around 3 percent in 2007.

Consumers are already curtailing spending. Retail sales increased the least since March 2006 in December, the British Retail Consortium has said.

The only conclusion possible from this mess of contradictory and unclear data is that a definitive conclusion is impossible. The coming year will be fiscally difficult, that is fairly certain. That the effects will be anywhere near as bad as some predictions suggest is very unlikely.

The status of the UK economy depends to a great extent on the health of other economies in the world, primarily that of the US. There too the information does not lead to a clear answer, the sad fact is that we are going to have to wait and see.

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Identify Fraud: Panic or Problem?

January 7th, 2008

Identify fraud is becoming a worry for more and more consumers due to many high profile media cases. Primarily the several cases of lost information by government agencies in the past few months, but there are less serious examples such as Jeremy Clarkson’s recent experience. He published his bank details in one of his newspaper columns claiming that while fraudsters may be able to put money into his accounts they would not be able to take any out, he then found that someone had used the information to set up a £500 direct debit to a diabetes charity.

The threat may be magnified by the media attention, but it is certain that there is an underlying threat there and everyone should be aware of it. For most people it is a matter of common sense to keep your financial information private and ignore unsolicited emails from Nigeria offering you financial deals that seem to good to be true.

For those seriously worried about identity fraud one credit card provider has recently begun providing a free identity alert service.

Capital One customers will have to register online to use the first-of-its-kind service. They will then be sent alerts via email regarding any applications made for credit in their name with or without their knowledge. This will hopefully thwart hackers’ attempts to apply for credit cards, loans or mobile phone connections using the stolen ID.

Capital One says that the latest service has been launched after research carried out by the company found that over 42 million card users in the UK do not know how to discover if they have been a victim of ID theft. Only one in 10 users knows what do if they suspect their ID has been stolen.

The Capital One offer is in fact quite limited and presumably motivated more by profit than genuine altruism, but it is a step in the right direction and more companies will soon be offering similar services. It must be said, however, that while these services are useful, they are no match for common sense and simple vigilance.

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The FSA May Grow Some Teeth

January 5th, 2008

In response to the credit crunch and the Northern Rock debacle the government has proposed enhancing the powers of the Financial Services Authority (the FSA). A Treasury spokesman said the government wants to give its markets regulator ‘the ability to be a bit more hands-on in their intervention early on when the problem is identified’ at a bank.

While this is a good idea I can’t help but feel that the government is closing the stable door after the horse has bolted. In an interview with the Financial Times, Alistair Darling said that he planned to ‘give the FSA the powers that it needs.’ Again, this seems to be a good idea but it begs the question why did the FSA not already have the powers that it needs?

Savers queued to withdraw their money from Northern Rock in September after it emerged that the bank had been forced to approach the Bank of England for emergency funding. It was the first run on a UK bank in more than a century and this perhaps explains why no one was either expecting it or in any way prepared for it.

The legislation is going to be announced in May after a three month ‘consultation.’ Darling has proposed giving the FSA the power to seize and protect customers’ cash if their bank was to get into difficulties. He would also give the regulator power to make sure that banks in trouble have enough day-to-day cash to keep going. Among the other powers he might give the FSA is the ability to separate failing parts of a business from the healthy parts and possibly move all deposits to another bank that is not in trouble

Mr Darling has ruled out having a special institution designed to take over banks that get into trouble, as happens in the US, but he wants to introduce a new Cobra-style response unit – based on the civil contingencies committee – to deal with any future financial crises.

Much of Mr Darling’s initiative seems to come from his anger at the way his handling of the Northern Rock crisis has been criticised by the press, and the fact that the board of Northern Rock has maintained control of their business despite being bailed out by the treasury to the tune of £57 billion. There is a tone of aggression in the proposals that aims to deal with both of these factors and although it may placate the press, many banks are beginning to worry. Perhaps that is a good thing.

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