Jim O’Neill, chief economist at Goldman Sachs who correctly predicted the fall in US house prices has warned that the UK economy will be hard hit by the global credit crunch.
He warns that UK mortgage markets appear effectively frozen, even the Bank of England’s attempt to inject liquidity into the market doesn’t seem to be working. With mortgage lending halted, house prices look set to fall, creating a period of negative equity and falling consumer confidence. For an economy that has relied on consumer spending, this will be a significant problem.
Furthermore, the strength of the UK economy, is also based, to some extent, on its financial services sector. The credit crunch is liable to lead job losses in this sector and this will reduce spending amongst an influential sector of consumers.
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