Time To Batten Down The Hatches?
No one likes to be the purveyor of bad news, particularly on a regular basis, but this seems to be the job which has befallen Mervyn King, the Governor of the Bank of England, over the past few months.
As many individuals in the UK today are struggling to keep their heads above water with their loan and mortgage repayments, he has been the one to announce that interest rates for loans and mortgages will remain at the same level, whilst at the same time telling us all that inflation has increased to 3.3%, reducing the real spending power of our take home pay, a double whammy for many families trying to budget their income against their regular monthly expenses.
The latest bit of bad news came last week, when Mr King was speaking at the Mansion House dinner. During his speech he said that the British economy was facing the biggest challenge seen for the last twenty years and that due to the rising price of basic commodities such as oil, food and energy, the rate of inflation would continue to rise over the short term, forcing many of us to have to tighten our belts yet further. He said “It will not be an easy time and I know that some families will find it particularly difficult.” As a result of this, he predicted that both consumer spending and house prices would reduce further over the coming months.
On a more positive note, Mr King also said that the current squeeze on the real value of take home pay was only a short term problem, as he expects inflation to fall back towards the Governments target figure of 2% towards the end of this year.
Also, the possible fall in house prices will mean that the ratio between income multiples and property prices will close slightly, making it easier for individuals to obtain a suitable mortgage or home loan, which should particularly provide help for first time buyers who may be encouraged to enter the housing market and provide a welcome boost for the industry.
