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Recession fears prompt banks reform warning
FEARS of a full-blown recession grew last night as the Government was warned that Britain's financial sector could be damaged by stringent new regulations, while property prices resumed their downward spiral.
Confederation of British Industry director general Richard Lambert claimed that "seismic" regulatory changes in response to the Northern Rock banking crisis could harm the nation's financial services sector.
And homeowners and borrowers must wait longer for more relief after inflation fears yesterday deterred policymakers from a second interest rate cut in as many months.
New figures released by Britain's biggest mortgage lender, Halifax, also revealed that house prices resumed their downward trend during February, the average cost of a home dropping by 0.3 per cent.
Mr Lambert's warning came in a speech in London, during which he claimed that a Government consultation document on reforming the banking system left critical questions "unanswered".
He said: "There is a risk that the Government wants to rush legislation through without taking enough time to reflect.
"The institutional changes proposed are very significant in scale, and represent a once in a decade chance to get on to the front foot. We are going to need a bit more time to get this right.
"If we get the answers wrong, the long-term impact of Northern Rock will be very serious. But if we get them right, the UK has the capacity to emerge from all this actually strengthened by the experience."
A Treasury spokesman stressed that Chancellor Alistair Darling had made clear there would be "no knee-jerk reaction".
Meanwhile the Bank of England's Monetary Policy Committee (MPC) yesterday left interest rates unchanged at 5.25 per cent after reductions in February and December.
The widely expected decision comes amid concerns over inflation pressure from oil prices, which soared to a new record high yesterday, and rising food costs, and household utility bills following price increases by energy firms.
Industry data this week also signalled surging costs for manufacturing and services firms, heaping pressure on prices.
Although the MPC expects the UK economy to slow sharply during the first half of 2008, it is charged with keeping inflation pegged at two per cent. The official measure, the Consumer Prices Index, is currently above target at 2.2 per cent.
Most economists predict the MPC will hold off until May before easing rates further, although an April move is not ruled out if there are signs of a more serious slowdown.
The Halifax's property figures also revealed annual house price inflation weakened further to 4.2 per cent, its lowest level since October 2005.
The latest drop comes after house prices stalled during January, while there was an unexpected rise of 1.4 per cent in December.
But house prices rose by just 0.2 per cent during the three months to the end of February, compared with the previous quarter, to stand at 196,649, while they have fallen during four of the past six months.
The figures come a week after Nationwide Building Society said house prices fell for the fourth month in a row during February, dropping by 0.5 per cent, while annual growth slowed to just 2.7 per cent.
There is little sign of the market picking up in the near future, higher mortgage rates for new borrowers more than wiping out the two recent interest rate cuts.
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Saturday 26 May 2012
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