by Jerome a Paris
Tue Aug 2nd, 2005 at 07:17:22 AM EST
Yes, it's time for another "bash the UK economy" thread...
HSBC hit by 'difficult' UK credit market
HSBC, the world's third-biggest bank by market capitalisation, yesterday singled out the UK as its "most difficult" credit market as it reported a sharp increase in bad debts on credit cards and personal loans.
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Stephen Green, chief executive, said bad debts had increased as a result of rising interest rates and a change in the law on personal bankruptcies. In HSBC's UK consumer operations, provisions as a proportion of risk-weighted assets jumped to 1.47 per cent, from 0.98 per cent for the six months to the end of June.
The figures are further evidence of deteriorating credit conditions in the UK, where most large retail banks have warned of signs of distress among consumers who have borrowed heavily using credit cards or consumer loans. However, HSBC said it saw no sign of increasing arrears on mortgages, which account for the majority of household debt.
That last point is good news, but may not last in view of now stagnating house prices. Remember that the Dutch recession of the past few years has been in large part caused by a slowdown in consumption from stagnating house prices after several years of rapid growth.
Flat market pushes down house price growth (FT, 30 July)
The housing market has slowed dramatically since last year and prices have been stagnant in 2005, according to the new FT House Price index - the most accurate guide to the real trends in residential property prices.
The average British home cost £192,400 in June, almost the same as in January. The flat market has pushed the annual housing growth rate from a recent peak of 15 per cent last summer to 6.2 per cent last month.
The future of the property market in the medium term is unclear. But it could have an important bearing on consumer spending which is largely responsible for the current economic slowdown in the UK that is expected to prompt the Bank of England to cut interest rates next week.
This week, Sir Andrew Large, the Bank's deputy governor, acknowledged the role of the housing market when he said consumers might have put the brakes on spending because house prices were no longer rising.
All the signs are pointing in the same direction.
The point is not to bash the UK per se, but to show the likely direction for the world economy as the debt-fuelled growth of the Anglo countries sputters to a halt and confirms to skeptics that such growth was highly artificial.
The most interesting thing about the UK economy is that it is about a year ahead of the US one - its housing boom took off earlier, and is slowing down earlier because the Bank of England started rising interest rates about a year earlier than the Fed (but has stopped earlier, going from 3.25% to 4.75%, whereas the Fed has already gone from 1% to 3.25% and is still promising rises in the coming months).
Do note that Australia is even more in advance in this cycle and has already seen falling house prices.