How Is The Subprime Crisis Affecting UK’s Economy

Jan 28 at 5:05pm by Personal Finance Claims

As stock markets tumble worldwide, triggered by the US subprime crisis, experts it seems are no longer questioning the prospects of a recession. Having come to terms with reality, they are now actually more concerned about how deep and long the recession will turn out to be. For conclusive proof on the impending recession, you just have to look at the current activities of some of the world’s biggest banks such as Citigroup, Morgan Stanley, Merrill Lynch and others, who recently had to stretch out their hands to Asian and Middle Eastern funds for bailing them out of the ongoing crisis.

The repercussions of the US subprime crisis are being felt in Britain also, evident from the recent asset reduction announcements made by some of the largest banks such as HSBC, Barclays, and UBS. The subprime crisis is also affecting Britain’s fund managers including top names such as Scottish Equitable, Friends Provident, Norwich Union and others. With share prices falling continuously, most of these funds have restricted withdrawals and it is being assumed that investors might have to wait a little longer in case they are looking for an exit. The UK property market also seems to be getting affected as IMF estimates suggest that houses in UK on an average are overvalued by around 40 percent. This is an indication of the impending fall in UK’s residential property prices.

If there is no let up in the US subprime crisis, Britain’s economy might be hit hard in the days to come. This is quite possible because Britain’s economy is already having problems with overvalued real estate, huge amounts in personal debt and a large current account deficit. Any further worsening in the US subprime crisis may just provide the spark needed for triggering the ticking time bomb. Another factor is that banks in the UK have the lowest amounts in capital reserves as compared to their counterparts in other developed nations. As such, lenders here feel that they might be in for trouble if they are not bailed out by the Treasury as and when needed.

If the subprime crisis worsens, Britain might witness increased job losses, home evictions, price rise, growing poverty and many other ills in the near future. The most affected would probably be the middle class working population, since they neither have deep pockets nor are their jobs guaranteed. Since, the future will get redefined in the next few months; it is recommended that those in the danger zone rethink their investment or mortgage decisions. The right thing to do however would be to get professional help before taking any financial decision such as a mortgage, unsecured loans, etc. It may still not guarantee anything but one thing is certain that it will significantly reduce the probability of making grave errors and losing everything in the process.

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