George Osborne
George Osborne said that Britain will be adamant to see the ‘color of Europe’s money’ before it allows taxpayers put cash £636bn International Monetary Fund war chest so as to cope up with the financial crisis in Eurozone. The chancellor set four conditions in view of this Britain’s compliance to provide guarantee of £16bn to allow Washington-based fund to protect the future of Euro.
George Osborne also said that the Britain’s partners in G20 group of developed and developing countries listed in the name of debtor nations are required to fulfill terms in return for loans. This includes no new special IMF funding vehicles and full IMF conditionality.
Another important thing the chancellor stated was that IMF resources aimed at supporting countries is by no means a substitute for credible steps by eurozone to support their currency that means the world should see the color of their money before contributing further. He proposed a deal aimed at providing more resources for the IMF was coming together and main barrier being at Europe’s willingness to raise more money.
Olli Rehn, economic and affairs commissioner of Europe expressed concern for Eurozone crisis and said Europe’s needs stronger firewalls. Hopefully we can get a positive solution and we need the support of American and British people to increase IMF resources, he added. Tim Geithner, US treasury secretary cam up in support of extra funds but that this is surely not be a substitute for any change in Eurozone.
George Osborne admitted that eurozone countries have got a lot over last one and a half year like giving up power in a fiscal deal, collecting resources in central fund and structural reforms in many nations. Although these are no easy decisions but fortunately these have helped a great way. These are very appreciable achievements but at the same time it is to be acknowledged that these are not sufficient. It is required by Eurozone countries to affirm financial market that they can deal with any consequences.
Christine Lagarde, IMF’s managing director wants to double the fund’s resources to cope up with financial crisis to double to $1tn ($500bn coming from eurozone and remaining $500 from rest part of the world). Osborne seemed little discontented as he thinks British economy will be boosted up if eurozone crisis gets resolves but it will be back on track only if domestic problems are rectified biggest of which is debt.
The chancellor also said that of major economies of the world Britain is the only one that has experienced the biggest increase in debt over the decade with total of corporate, household, financial and public sector reaching 500% of GDP. The past cannot be changed but it can be controlled or even rectified if we manage deleveraging in the best possible way. Osborne said that he had inherited an economy that was predicted to undergo largest budget shortage in the G20 and thereby all his decisions regarding tax and spending had been justified by events.
UK House Prices
Euro crisis is adversely affecting UK and other European countries. Another sector that is facing challenges because of eurozone crisis is the housing market. A poll of analysts recently revealed that most of the experts expect house prices to fall moderately due to drooping economy and euro uncertainty. On the other hand expert’s caution that this modest drop may prove buoyant provided that eurozone crisis worsen even to some extent.
As far as growth aspects are concerned, this scenario is steady with the view of economic growth since analysts forecast the economic growth will further slowdown in 2012. This will have an impact on average national property prices thereby making millions of Britons poorer in property in spite of favorable growth in few housing markets reported recently. 2012 is likely to witness a slip by a median 1.7% in house prices UK, as supported by a poll of 23 economists. This is a significant drop as compared to September’s outlook. Experts say, 0% growth predictions made couple of months back were considered depressing however this is the best now Britain can hope for.
The major contributing factor to drop in growth outlook is eurozone crisis that faded affordable funding for big and largely indebted European countries like Italy and Spain. There was also a fear in markets and banks regarding the mortgages and they become reluctant to grant mortgages. And now factors like little demand for property purchase, greater requirements of large deposits and strict lending criteria are keeping the housing market in recession.
Where economists believe eurozone may already be in recession, the poll among economists suggests that Britain has 50% chances of being already in recession. These factors are interlinked since economists believe that the eurozone is the largest risk to the UK housing market and general economy. Credit crisis will further intensify the difficulties in securing mortgage and hit house prices all through the UK. But European Central bank has lately lent banks 489 billion Euros to be precise as an extraordinary measure to provide banks with very cheap cash to shore their resources.
UK house price are likely to decline to fall this year because economic turmoil from debt crisis is giving rise to unemployment and undermines consumer confidence. Nationwide said that UK economy will grow not more than 1 percent this year and labor market will continue to remain challenging. If eurozone crisis fail to ease or deteriorates more, UK economy will then suffer contraction, increase unemployment and reduce house prices. In view of this the Bank of England expanded its bond-purchase program by 75 billion pounds to 275 billion pounds in Oct 2011.
In addition to this, European stocks fluctuated with stoxx Europe 600 index directing for the first annual decline in these three years. The housing market this year is expected to be featured by low levels activity, prices getting modestly lower or moving sideways. Now it is to see whether the predictions made by customer-owned lenders and analysts of falling or stagnating UK house prices in 2012 will prove to be true or not.