Yet more credit crunchiness

[Saturday]

in what is perhaps an attempting to emulate the prudence of his predecessor, Chancellor Darling has called for banks to be more cautious in their lending practices. This call might go unheeded by the banks, but the credit boom is over.

The rising costs of borrowing, fuelled by the global credit crunch, have led to an increase in the number of people seeking debt advice

[The Citizens Advice Bureau] said the figures illustrated how the consumer credit boom of the past decade – characterised by an easy availability of cheap credit and by people taking on more and more debt – had turned sour for many.

“These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price,” said David Harker, CAB’s chief executive.

Bankruptcy-related enquiries rose 50% last year, while the number of people requiring help with their overdrafts rose 14%. Mortgage-related enquiries rose by 11%.

Most disturbing of all, the CAB argued, was a 33% rise in the number of people struggling to pay their energy bills and a 25% rise in enquiries about council tax payments.

So when the Northern Rock successfully requested emergency support from the Bank of England, it is not surprising that queues quickly formed outside bank branches as savers sought to retrieve their much needed money.

As for the UK economy, the “worst case scenario” is that growth will be 1% lower in 2008/9, according to a report by the Ernst & Young Item Club:

“Despite the very different dynamics of supply and demand in the UK, it is possible that this slow-down will prove contagious to the housing market this side of the Atlantic,” Professor Spencer said.

He added that about two million UK borrowers who had fixed rate mortgages faced a tough time when those deals expired.

“When they do they are likely to see far more stringent terms around the conditions that UK lenders offer as well as an uplift in the monthly cost,” Mr Spencer said.

The Item Club added that the US could expect to see a 1.5% cut in growth next year with Europe as a whole seeing economic expansion slow by a lesser amount than the UK.

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