Bank crisis fall-out may lead to UK recession


The possibility of a recession in the UK has become much greater following the Bear Stearns crisis, in which the bank was forced to get an emergency bail-out from the US Federal Reserve. Bank shares on the US and UK stock markets fell steeply amid fears that other banks may be hit by the crisis.


[UKPRwire, Tue Mar 18 2008] The possibility of a recession in the UK has become much greater following the Bear Stearns crisis, in which the bank was forced to get an emergency bail-out from the US Federal Reserve. Bank shares on the US and UK stock markets fell steeply amid fears that other banks may be hit by the crisis.
Experts fear that the near-collapse of Bear Stearns, one of the world’s largest banks, will have severe repercussions on the UK economy and will further damage an already depressed housing market. It is anticipated that banks will raise interest rates on mortgages and loans, which will increase the financial difficulties of many UK households already trying to cope with higher costs and prices.
Although the Bank of England has cut interest rates twice in an effort to boost the economy, banks and lenders have not passed on these cuts to customers. Around 1.4 million households have fixed-rate mortgage deals which will expire over the next 18 months, with around 6 million more with variable-rate deals, all of whom will face higher rates that they may not be able to afford.
The Chancellor, Alistair Darling, who was facing criticism after last week’s Budget and his relatively upbeat comments on the UK weathering the economic crisis, may now be forced to take strong measures – including slashing spending and raising taxes – to counter the effects of a major economic slump and likely recession.
“The fall-out from the Bear Stearns crisis will certainly have adverse affects on the housing market here, particularly for those homeowners already struggling to meet their mortgages, as well as for anyone trying to sell their property,” said Lawrence Smith of Decision Homebuyers. “Rather than face ever higher mortgage repayments, some owners may decide this is the time to cut their losses and get the best deal they can for their property before house prices slide even further.”

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