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Fears That Shares Crisis Will Hit Uk

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Fears that shares crisis will hit UK

Zoe Wood

Sunday August 12, 2007

The Observer

Investors are expected to suffer this week as fears grow that the global financial crisis, sparked by Americans defaulting on their mortgages, could have serious repercussions in Britain.

Shares went into freefall round the world on Friday and experts are concerned the meltdown could soon be felt by British householders in the form of depressed house prices and lower income from investments. Pension funds which had been boosted by the strong performance of the stock market by this year's gains have been wiped out, sending some schemes back into the red.

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All eyes are now trained on how the Asian markets react when they open for business tomorrow to see how confidence has been shaken in global markets. 'When confidence is hit and markets start to wobble there is the danger of contagion from one to another,' said Dr Gerard Lyons, chief economist at Standard Chartered. But he says people shouldn't panic: 'The market is reacting to the prospect of a slowdown in America and higher interest rates. What happens in the City eventually has an impact on the high street but the housing market isn't about to crash.' :lol:

On Friday alone almost £56bn was wiped off the FTSE 100, the index of Britain's biggest companies, as hysterical traders bailed out of financial stocks to find a safer home for their money. In an attempt to stabilise the situation some central banks waded in and lent money to banks caught of guard by the rush to withdraw funds.

Their intervention aimed to prevent a so-called liquidity crisis - or credit crunch - which could destabilise the economy, forcing interest rates up and potentially causing some banks to collapse. It is not yet clear whether the move was successful. 'At the moment this is a problem within financial markets rather than a serious problem in the world economy that markets are reacting to,' said John Jay, development director at fund manager New Star Asset Management.

It is likely that after being burned in the US, banks will tighten lending policies in Britain. 'There is a danger that financial market turmoil and tighter credit will hurt the mortgage and housing markets, says Howard Archer, of economic analysts Global Insight. 'This increases the risk that the UK housing market could see a sharp slowdown.' The share prices of big banks and mortgage companies such as the Halifax, Barclays and Northern Rock were among the hardest hit. :lol::rolleyes::rolleyes:

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