Morning:
20°c
Secret deal hatched by News of the World to hush up details of phone-tapping was sealed in a tiny room at the Royal Courts of Justice
More...
Home loans: it's looking even worse
Jonathan Prynn, Consumer Affairs Editor14.04.08
Hopes of another quick cut in interest rates to ease the credit crunch were dealt a huge blow today.
Official figures showed that inflation is still racing through the economy, making it far less likely that the Bank of England will trim rates again next month.
Prices of manufactured goods - a key pointer towards underlying inflation - surged by 6.2 per cent in the year to last month, the highest rate since May 1991.
City economists described the figures as "a pretty horrid set of data" that further complicated the Bank's delicate balancing act. They will also dismay the Government, where ministers are desperate for the Bank to act quicker to help boost Labour's grim poll ratings.
Today Gordon Brown declared that "every effort of mine, every day that I wake up" is about steering the economy away from recession. Speaking alongside Ken Livingstone on a mayoral campaign visit in Ilford, Mr Brown insisted that he was acutely aware that voters were worried about the risk of a slump. He said: "At every point whenever there were world downturns, people ask the question, can the British economy come through this? I understand that people ask the question. But we are on the side of the homeowner and business owner."
The figures come as the Government's record on the economy came under attack from shadow chancellor George Osborne. Writing in the Standard today, he said: "Gordon Brown has been found out. His claims to economic management are exploded. The self-styled Iron Chancellor has had his mettle tested and failed."
Part of the blame for the sudden jump in factory gate prices was placed on Alistair Darling's decision to raise tax on alcohol and tobacco in last month's Budget. But by far the biggest contribution came from higher petrol prices after oil soared above $100 a barrel.
The cost of raw materials bought by manufacturers rocketed by 20.6 per cent - the strongest rise since records began in 1986.
Howard Archer, chief UK economist at Global Insight said: "This is a pretty horrid set of data that will not go down well at the Bank of England. It highlights the fact that the Bank cannot afford to relax on the inflation front and suggests that it continues to have limited scope to cut interest rates."
Homeowners had been hoping for another cut in the base rate after the Bank trimmed it from 5.25 per cent to five per cent last week. However, most lenders have been raising their rates for new borrowers and home owners who are remortgaging.
The Bank of England is mandated to target a two per cent inflation rate but the Consumer Prices Index is expected to stay stubbornly above that level at around 2.5 per cent when the March figure is published tomorrow. A report today said London's economy will almost come to a halt for the next two years as the shock waves from the credit crunch reverberate. Forecasters said London's snail-pace economic growth will lag well behind the rest of the country this year and next. The slowdown is prompted by the City being hit by the credit crunch. Deals are drying up, prompting up to 19,000 job losses and a collapse in bonuses.
London's GDP will inch forward by just 1.3 per cent this year and 1.2 per cent in 2009, according to the report from the Centre for Economics and Business Research. Not since 1992 has London's economy flirted so dangerously with full-blown recession.
CEBR chief executive Doug McWilliams told the Standard: " Whoever wins the mayoral election will face a much tougher economic backdrop than we've had since the early Nineties.
"These are going to be two really quite tough years and people will have to adjust their expectations.
"The idea that life will get better every year, that you will eat out more and afford better clothes will have to be adjusted. For anyone under 30 this is new territory." Mr Brown insisted that Britain as a whole was still on course to achieve growth this year and outstrip other countries, but he went out of his way to declare that he understood the fears of many voters.
The Prime Minister's words were prompted by a question from a Sikh woman when Mr Brown attended a Sikh New Year ceremony at a temple in Ilford. Baldesh Kaur Nijjar, 22, asked: "What are you going to do about the coming recession?"
Mr Brown conceded that the figures coming out of the US looked alarming for British voters. He said: "All my efforts are to make sure that we can help homeowners try to buy homes, to help those people with mortgages who need the help of the Government at this time, to help business get their investment and to help people get new jobs or maintain the jobs they have."
Mr Brown shrugged off recent speculation that Labour MPs are manoeuvring against him and showing a lack of discipline amid his low poll ratings.
Reader views (15)
Here's a sample of the latest views published.
Interest rate cuts? In the US, rates have been slashed by %3 in a matter of months, and made no difference. Why do people think that its any different here? A saving of £23 a month on a £150,000 mortgage is, quite frankly, slightly less than a drop in the ocean. I agree with the above, let the recession happen. Life is nothing more than a series of peaks and troughs, rather than a box of chocolates!
- Pacman, London, UK
As all the well known names in Investments Worldwide have been injured by this latest financial fiasco, now is the time for Mr Brown and his Associates to show UK people how good or bad they really are by some real action otherwise they are no different from ordinary speculators!
- C F, Middlesex, England
The housing pyramid scheme has got to fall. You cannot keep subsidising this ludicrous bubble with savers/taxpayers money. People do not want to be saddled with huge mortgages just to have a roof over their heads! The prices need to come down!
- Danny Powell, London UK
Why is Mr. Brown on the side of the home owner, does he really think that prices 7 to 20 times peoples income is good for us who cant get on the ladder?
Besides, there is nothing Gordon can do now, house prices need to drop 40%, the game is over Gordon and you broke the train set!
- Paul Smith, Telford
Not sure about increased tax on alcohol and tobacco increasing factory gate prices this is utter rubbish, prices have been going up for a long time now, not just because of oil but because of increased houseprices and staff wanting more Money to buy a house... This government should allow the prices to crash and allow a recession, they should not intervene to stop one. A recession will do us all good, it will be hitting the reset button on a computer, we all start a fresh again..
Gordon and his matey hairy eyebrows whatever minster he is supposed to be have not got a clue... they only want your votes, this is all that matters to them...
Maybe I should go on dole and buy a million pound house so they can bail me out...
The more they pump into the system the worse the final outcome...
- Mark, Chester, cheshire
The good times could not last forever. Where Labour failed us was in suggesting that they could and not preparing us for "rainy days". This lack of preparation means that the tools to hand (such as fiscal policy) to help matters are very limited.
True prudence lies in having the intelligence to realise that bad things can happen and being prepared for them. By this measure, Brown has been found wanting.
- Christian, West Sussex
Gordon Brown is the Prime Minister of all Britain not just the "home owners". I am locked out of the property market (despite having done everything I can to maximise my savings and income that I earn) as a result of Gordon Brown's policy of building the economy on a house price bubble. Goodbye Brown, and thanks for nothing!
- Sam, London, England
"We are on the side of the homeowner and business owner". Surely the Prime Minister realises that these interests are often in fundamental opposition?
Small business in particular need protection from landlords seeking to convert their shops into more profitable residential uses. A residential price crash would take some of this pressure off, forcing the landlords to let out more commercial property at realistic rents, creating local shopping communities where Post Offices would flourish.
- Reg, London
This recession is under new labour's watch. Now we can all find out how they will sort it out?
- Joe Sardena, Swanley Kent
The British economy has in the last few years relied on house sales for its buoyancy (even the Home Owners Information Pack was just another way for squeezing a bit of additional tax(VAT) out of each transaction)so a fall in house sales will have a double effect, lower Stamp Duty and lower VAT The effect of this will exacerbate the Treasury's £40Bn deficit. And it is reasonable to lay a good portion of blame at Gordon's door for selling the family silver to finance Labour's Spend Spend Spend habit
- Jerry, London
But Mr. Bean Brown said all is not so bad? What a joker.
- Georgie, Islington, London
This is why the idea that the London taxpayer should pay out ever more to Government at every level has to be knocked on the head - the Mayor's �25 Congestion Charge (with no residents' discount for owners of many cars) is a tax, as is the so-called "Low emission Zone" charge. As are the ever more onerous parking regulations and fines from boroughs of all political persuasions, and the heavy charges for on-street parking for certain types of demonised cars in some boroughs - eagerly to be copied by other money hungry councils with their beady little eyes and tongues out. If you look at the recently started litter campaign, what are many of the proposals - more taxes on fast food, more fines, more spending on surveillance...how about just using the resources local authorities have in place to clean up the streets? Additional charges like this at a time of slowdown will damage any recovery.
- Damian Hockney Am, London
Our oceans are full of plastic - our forests are vanishing - wild life is becoming extinct - London's economy does not interest me that much.
- Frederick, London
I am a city worker, very worried about losing my job, especially as I am a contractor.
I have heard that there will be 150,000 jobs alone lost in the city of London. time to pull in all my recources, especially as I am a home owner...
- Marcus, London
What, only 19,000 job losses? Should be a "much higher figure" if things are as bad as they say that they are, right? More like 37,000?
- Fraser, Telford Park
