The Item Club, an economic research body, claims that the UK GDP could decline by 1% due to the current credit crunch.
It is difficult to predict the final impact of recent volatility. Some specialists predict that this figure could be as high as a 1.5% .
There are "worrying signs" from the financial markets, with banks becoming more cautious about lending to each other. This could of course spill into the high street as well as the housing market.
Item affirms that a decline in the property market is possible as homeowners coming off fixed rate mortgage deals are faced with higher interest rates .
Furthermore, two million UK fixed rate borrowers will also be faced with a crunch when their cheap fixed rate mortgages expire at the end of 2007. When this happens they are likely to experience very stringent conditions as well as an increase in the monthly cost.
Item is calling upon the Bank of England to be "nursemaid" to prevent the credit crunch from spreading.
The US sub-prime crisis effects are already visible in the UK this week with mortgage rates rising, a small mortgage lender going into administration, as well as Northern Rock asking the Bank of England for emergency help.
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Credit Problem Affects Households
Mon, 17 Sep 2007
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