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Credit Crunch Reality



The Confederation of British Industry (CBI) has released its latest report confirming all preconceptions of the economies struggling sustainability. The dismal outlook on the UK's economy forecasts a decelerating growth of an estimated 1.3% which is the slowest since the 1992 recession, with unemployment increasing to a horrific 1.8m, a rise of 150,000.

The average decrease on house prices in the UK is estimated at around £15,000 this year alone, the inevitable price deflation within the housing market has not gone unnoticed least of all by employees contributing to the construction of new properties transpiring negative energy throughout building sites across the UK, with builders even resorting to mothballing sites rather than starting work. Our economic position hinges mainly on oil prices which having reached nearly $140 a barrel earlier this month, now trading at $133. Is this constant fluctuation in oil prices driven by hedge fund speculation? We will never know, however the possibility of our slowing economy may result in driving the price of oil down but only time will tell.

Mervyn King

The Bank Governor has been forced to write a letter to the Chancellor as Consumer Price Index (CPI – measure of inflation) has risen beyond the 3% "danger zone" to 3.3% for the first time since 1997. The Bank of England's primary role is to restrict inflationary rates within adequate margins by adjusting interest rates accordingly; it is unlikely the monetary policy will prevent any possibility of increasing interest rates in upcoming months. The current state of the economy may have to result in more frequent communication between Mervyn King and the Chancellor rather than allowing consumers (voters!) to suffer even more than the market effect of inflation reaching above 4% by the end of the financial year.

We may have slight control over the occurring problems within the UK's economy via wage levels, where the strain for matching increases with the rate of inflation will become increasingly harder within both the public and private sectors.

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