Fear grew this week that Britain was heading for a recession as a new report by investment bank Lehman Brothers was published. The report suggests the chances of Britain going into recession over the next three years stand at one in three at the current time, due to the global financial turmoil and increasing mortgage rates at home.
A recession is defined as two consecutive three-month periods where the economy contracts. The latest revised figures cut the annual rate of growth in the UK in 2007 to 2.8%, whilst house price inflation fell to its lowest rate for 12 years. According to Lehman Brothers, ‘It has become clear that the banking system – and hence the credit creation process – is under considerable strain.’
Even Tom King, Governor of the Bank of England, has admitted that the financial crisis has entered a ‘new and different phase’ whilst fellow monetary committee member, David Blanchflower, said he was concerned that ‘something horrible’ could soon afflict the economy. Economist Howard Archer, from Global Insight, commented that the impact of the credit crunch has ‘escalated’.
Agreeing that the crisis is now affecting more than the financial world, the tabloids have been alerting their readers to the problems ahead. The Mirror feels that ‘our homes and jobs are in greater jeopardy than at any time in the past three decades’, whilst the Mail offers its readers a house price crash calculator. Meanwhile, the Sun has calculated that households were £7 a week worse off this February than they were in the same month last year. They base their figures on research by the Centre for Economics and Business Research for ASDA, which reveals that although earnings before tax are £17 a week higher than February 2007, essentials including food, transport and housing costs are £24 a week more.
Rising fuel prices have had a major impact on many families and there have been calls for more help for the ‘fuel poor’. More than 2.3 million households are now living in ‘fuel poverty’, which is defined as a household that has to spend more than 10% of its income in fuel bills. The Fuel Poverty Advisory Group feels that although progress has been made to help the vulnerable, much more could be done for those who are in financial difficulties.
‘Water poverty’ is set to increase too, with one third of people in the South West facing the possibility by 2010 says the Consumer Council for Water. The term applies to people spending more than 3% of their income after tax on water bills.
Many pensioners struggling on low incomes have failed to claim pension credit they are entitled to. Pensions Minister Mike O’ Brien has scrapped a target which aimed to get more than 3 million pensioner households claiming credit by April 2008. He has refused to set a new target but hopes to get another 235,000 new claims this year for the benefit which tops up income of people over 60 to £124.05 from April 7th. As many as 4 out of 10 fail to claim their entitlement.
For anyone heading towards debt, a new voluntary bank code comes into effect today. It requires banks to do more for their customers if they believe they are heading towards debt problems. Chief executive of the British Bankers Association, Angela Knight, said, ‘This new Banking Code gives strong commitments that banks will lend responsibly and will help customers who may be heading towards financial difficulties’. As the economic climate worsens, it is feared many more people will need all the help they can get.