Getting credit flowing

Total lending to individuals rose by some £0.7 billion in September, and there has been a twelve month growth rate in the economy of some 0.8 per cent.

Although consumer credit fell below the previous six month average, credit card spending increased by some £0.1 billion.

All in all sentiment within the market is much more positive. Prime equity prices are reported to be up some 50 per cent since their March lows and only 25 per cent below peak levels. This is the lead we need to sustain growth in the UK economy following on from gains in the repairing of the banking system.

However, it has just been announced two major banks have had yet another major cash injection. This follows the view that the banking system must be totally fixed before the current macro economic stimulus can be withdrawn.

The above thinking is no doubt based on the fact that there are few alternative means for businesses to raise finance when the major banks are troubled. Some suggest there is a disturbing parallel to the problems that occurred in Japan in the 1990’s and everything must be done to avoid the same problem occurring in the UK.

The pound has seen considerable depreciation in recent months falling by some 5/6 per cent against a basket of world currencies. This depreciation could be explained in part by the fact we are currently running a base rate many points below many overseas rates. As and when interest rates in the UK start to rise again, the suggestion is our currency will strengthen once more.

On the World scene, trade is weaker than a year ago, with the Pacific Rim region being the one exception. Perhaps rapid expansion in China and India are one such reason. There is certainly cause for good cheer with the news that the US is seemingly coming out of recession. As more positive statistics from the US come forward there will undoubtedly be a greater ‘feel good factor’ experienced in the UK/Europe.

From a property perspective there are two key advantages to be had according to GL Hearn.
Firstly the investment market is running ‘hot’ due to overseas investors buying up stock whilst a weak pound exists. Secondly, the re-gearing of commercial leases is most probably best approached now, whilst interest rates and commercial rates remain low and there is low tenant demand. A fix for five years or more could be the best decision made in one or two year’s time.

In conclusion, we are not out of the woods yet but the best sign of recovery will be when the government stops quantitive easing and the banks are back, freely offering loan finance in a prudent manner.

Justin Sumner is director - new homes at consultancy GL Hearn

Have your say

You must sign in to make a comment