Comments on Wall Street jitters and UK housing
August 10, 2007 at 4:46 pm | In bank of england, ftse, housing market, subprime, wall street | 24 Comments
Reputable economist Fionnuala Earley of Nationwide Building Society this afternoon released the following statement on the Wall Street selloff and its potential impact on the UK housing sector:
the implications for the UK housing market … could mean that wholesale funding costs will increase and that lenders tighten up their own criteria, particularly those that are very dependent on wholesale funding. However, if the Bank of England see these current developments as a real threat to the City, this is likely to reduce the risk of further increases in interest rates, counteracting some of that effect.” [emphasis added]
Earley’s comments are somewhat contradictory in nature to the tone Mervyn King and the BoE set in his press conference 2 days ago. Paul Tucker, the banks Executive Director for Markets stated that the fundamental pressures in the financial markets – driven mainly by the subprime crises – was isolated.
King said that he doesn’t make any predictions on the housing market, but that he was ’surprised’ by housing’s resilience. He adamantly stated he would not use interest rate policy to bail out ‘unwise lenders’ and claimed to find no real challenge to the global ‘macro-economic outlook’.
However, it appears central banks around the world beg to differ with King’s analysis. In response to the crises, Japan’s central bank injected one trillion yen (£4.2bn) into the Tokyo market, The European Central Bank pumped €61bn (£41bn) into European markets; Bernanke’s Fed added $24bn (£12bn) to the US banking system and the Australian central bank took similar action.
What prompted the interventions from the central banks was that overnight money interest rates shot up this week because cash was scarce. In other words, the price of money rose because it was in short supply.
As of late today, it appeared that the huge injections of funds in the US, Europe and beyond had had the effect of pushing those overnight rates back down again, relieving the pressure on the banking system, for now at least.
[guardian emphasis added]
With the price of money rising, no doubt consumer banks will pass those rising cost onto consumers. Yet King remains silent, even though the FTSE’s crumbling.
Will or will not his actions prove beneficial to UK consumers is the 64 billion dollar question du jour.
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