CFI: News Review
Split opinion over what the future holds by Mark
Stephens, deputy CEO, Aldermore
depending on exactly when you believe the credit crunch officially began, we are now approximately three years into the current economic slowdown (some say it began on 9th august 2007, when the French bank BnP Paribas trig- gered sharp rises in the cost of credit, which focussed minds on just how serious the global financial crisis had become). closer to home, the north-
ern rock debacle hit the headlines in September 2007 and a year later, on 15th Sep- tember 2008, Lehman Broth- ers filed for chapter 11 bank- ruptcy protection. When you cast your mind
back, there’s certainly plenty of water that has gone under the bridge in the global finan- cial markets. Having endured a three
year roller coaster ride, most British businesses are now hoping that we’re on the brink of a slow but steady economic recovery. unfortunately, some of the more pessimistic eco- nomic forecasters believe we’re teetering on the brink of a double-dip recession. So who’s right? Will 2011 see the start of better times ahead, or will we be in for another year or turbulence and trouble?
King of the hill one man who probably has a better idea than most is the governor of the Bank of england, mervyn King, who warned on the eve of the Spending review that the
uK is set for a ‘sober’ decade ahead, saying: “the next de- cade will not be nice. History suggests that after a financial crisis the hangover lasts for quite a while.” He also warned that it may be some time be- fore the uK inflation target of 2% is reached and confirmed that the next decade will be defined by “savings, orderly budgets and equitable re-bal- ancing”. So, a tough decade ahead,
but what about the year head? Peter Spencer, chief economic adviser to the ernst & Young item club, a leading fore- casting group, said the chanc- es of a double-dip have been exaggerated: “the economy is likely to slow over the winter following a surprisingly posi- tive first half of the year, but i think this will be a soft-patch, not a double-dip.” the item club is predicting that gross domestic product will grow by 1.4% this year and 2.2% in 2011, but says we will have to wait until late 2011 before we see any significant economic improvement. Peter Spencer also warned that low wage growth, rising unemployment and high inflation will mean that uK households are “in for a tough time”.
Balancing act the government is, of course, trying to perform a delicate balancing act which involves making drastic cuts to public spending which may result in up to 500,000 public sector job losses, whilst not cutting so deep that it holds back a recovery. Peter Spencer says that “Helping the uK out of recession has been a bit like peeling back an onion - re- moving one-by-one the risks
46 mortgage introducer NOVEMBER 2010
to the economy in order to re-build business confidence.” interestingly, British busi-
ness leaders have come out on the side of the chancellor with chief executives from 35 of the uK’s leading firms including marks and Spencer, Bt and glaxoSmithKline, publicly expressing their support for spending cuts. in a letter pub- lished in the daily telegraph, the business leaders said there was no reason to believe the chancellor’s approach would undermine a recovery: “addressing the debt problem in a decisive way will improve business and consumer con- fidence. reducing the deficit more slowly would mean ad- ditional borrowing every year, higher national debt, and therefore higher spending on interest payments.” the high profile signatories concluded their letter by saying: “the private sector should be more than capable of generating ad- ditional jobs to replace those lost in the public sector.”
Commercial impact i’m sure we all hope that they’re right. But what im- pact will this have on the commercial property market? the iPd monthly index has confirmed that September was another month of mod- est capital growth for the uK commercial property markets, at just 0.2%, resulting in a 12 month growth figure of 14.2%. September concluded a fifth consecutive quarter of capital appreciation. ian cullen, di- rector of iPd, said: “the near plateau which we now appear to have reached reflects the continuing uncertainty over property fundamentals and whether the uK economy
will enter double-dip reces- sion.” He also pointed out that: “While rents continue to fall in the retail and industrial sector, the office market has seen five consecutive months of rental growth.”
All bets are on So, a mixed picture with no conclusive indicators, which makes it very difficult, if not impossible, for businesses and commercial property inves- tors to decide whether now is the time to take the plunge or whether they should hold fire. ironically, one of the prob- lems that investors face is a limited supply of appropriate investments. to compound the prob-
lem, many of those who did invest in the past are find- ing it impossible to refinance due in part to the banks con- tinuing reluctance to lend, but also because they are on low rates which were negotiated some time ago on properties where the loan to value has increased be- cause the property value has fallen. the truth is that the econo-
my hangs in the balance and the commercial property mar- ket simply reflects the general state of health of the economy. if the government’s gamble pays off and it’s able to re- duce the deficit without hold- ing back economic recovery, then we can all look forward to more prosperous times ahead. if, on the other hand, the economy does wobble and slide back into recession over the coming winter, then 2011 and beyond could be a very tough time indeed. opinion remains divided and only time will tell.
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