Crisis Warning Hit the UK Hard
Credit rating agency Standard & Poor's alerted the economy, in April 2007, that the signs of stress are leaving cracks in the British sub-prime industry. '... overall arrears and repossession rates in the UK nonconforming sector are on the increase,' it said. 'Looking forward, we expect a continued slow deterioration in arrears in the short term, as recent rate rises work their way through.'
Less than six months later the credit squeeze did hit the UK economy - hard, according to a Bank of England survey.
The report warns companies that they will continue to be hit by higher borrowing costs and weak sales from the house-building industry, the result of the run on Northern Rock.
The new survey from the UK's central bank reports that lenders "expected recent market developments to reduce significantly their capacity to extend corporate credit over the next three months".
A large majority of lenders are preparing to tighten "price and non-price terms on loans to the corporate sector over the next quarter".
The Bank put strong emphasis on this survey, hoping that the warning will be taken seriously. The problem will not hit people borrowing mortgages and loans responsibly, but will have a negative impact on those using loans and credit cards indiscriminately.
Mark Clare, chief executive of Barratt Developments, said that the crisis at Northern Rock caused a fall in the house sales: "We would normally expect an uplift in volumes from the second week in September, but the Northern Rock issues have changed customer sentiment and there has been a 5-10 percent fall in sales since last week."
Published on October 10, 2007
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