Is UK Heading Towards a Recession?
Recently, the Governor of the Bank of England indicated that the UK faced the prospect of recession. He pointed out some of the factors that are slowing the UK economy down.
Falling House Prices. Falling house prices is an important barometer for state of economy. It affects consumer wealth and consumer confidence. IF house prices continue to fall, more will be pushed into negative equity which will reduce spending.
Rising Cost of Living. Rising food and energy prices is increasing the cost of living and making people less able to spend on other things.
Slow Down In Other Economies. Both the US and EU face lower growth. If our main trading partners slow down it will affect our exports.
Credit Crunch. Shortage of credit is making it more difficult to borrow, not just for mortgages but also firms wishing to invest.
How Will Recession Affect Housing Market?
- A recession in the UK, would lead to falling demand for houses. If unemployment rises then less people will wish to buy houses; there would also be a rise in home repossessions, which would reduce the demand for housing.
- Interest rates? Usually in a recession interest rates fall. But, the Bank of England are worried about rising inflation. They point to CPI reaching the governments target of 3%. Therefore, they are reluctant to cut rates. Therefore, if a recession is accompanied by inflation then it becomes more difficult to cut rates and makes the downturn more serious.
Original post by Tejvan R Pettinger