Has the credit crunch lost its bite?

Oct 10 2007 by Aaron Boland, Liverpool Daily Post

Local commentators tell Bill Gleeson the region may have escaped the worst

GORDON BROWN’S first summer as Prime Minister was full of alarms of one type or another. Diplomatic confrontation with Russia, bovine diseases threatening the rural economy, floods in Yorkshire and Worcestershire, and attempted terror attacks at Glasgow Airport and a London nightclub all contributed to Mr Brown’s baptism of fire.

One crisis in particular, the credit crunch, as it has become known, threatened to undo all the good work Mr Brown had achieved in his previous job as Chancellor of the Exchequer.

Yet, despite the financial crisis, if forecasts contained in yesterday’s Pre-Budget Speech prove correct, Britain’s record run of unbroken economic growth is likely to continue for the foreseeable future.

It might be that the worst is not going to happen: not yet, anyway.

The economy has certainly had mixed reactions to the problems caused by mounting bad debts in the US “sub-prime” debt market. Northern Rock and other banks abroad have had to fend off doubts about their liquidity that have led panicked customers to withdraw large sums of cash, but much of the rest of the economy seems to be getting on with business as usual. The world’s stockmarkets, for example, have bounced back from the steep falls of late July to reach record highs. While British Land’s plan to sell the giant Meadowhall shopping centre in Sheffield have been cancelled, plenty of other deals that depend on big bank loans and investor confidence are still proceeding.

Deals that have not been derailed include Ability Group’s £60m purchase last month of the Hilton Hotel which forms part of the Liverpool One development, and in August Ireland’s Alanis Capital splashed out £85m to acquire the Metquarter shopping centre in Whitechapel, Liverpool.

Also in August, Liverpool-based UK Land and Property bought the 300,000sq ft Walker House office block at Exchange Flags in a deal backed by £50m borrowed from Anglo Irish Bank.

Nationally, both the sale of Sainsbury and ABN Amro are examples of large deals still going ahead. Birkenhead-based Park Group has attracted fresh investors as part of its transfer from the London Stock Exchange’s Full List to the Alternative Investment Market. The developers of the former King Edward pub site insist their plan for a 52-storey hotel and residential tower has its finance in place and the scheme will still be built.

Consumer spending is showing signs of holding up. Easyjet and Ryanair have seen passenger numbers continue to rise through the summer, and are both planning further expansion.

The British Retail Consortium published its latest sales figures for the sector yesterday which show continuing steady growth. The BRC implied the weather had more of an effect on consumer spending patterns in September than fears about the credit crunch.

JACK STOPFORTH, chief executive of Liverpool Chamber of Commerce, has been tracking the effects of the credit crunch on the local economy. He believes the region has escaped lightly.

Mr Stopforth said: “We are very lucky in Liverpool. The whole city centre economy has been driven in recent times by property developments. Most of that investment has already been committed to by the banks and shareholders and the building work has started and that will continue to happen regardless. We have got off lightly because of where we are in the cycle.”

Mr Stopforth did say, however, he believes there could be other sources of disruption to the British and the local economy.

“Much of the turbulence is related to political uncertainty and once we get through the party conference season and things settle back we will be back to normal.”

Peter Stoney, University of Liverpool senior fellow, says there are some hopeful signs, but warns there is still cause to be on guard against a possible downturn later.

Mr Stoney, who edits the twice- yearly Merseyside and North Wales Business Prospect said: “We are not out of the woods yet. It’s a case of wait and see.

“We are not quite sure to what extent the Northern Rock crisis might yet come through into the UK economy.

“We are getting signals now of house price slowdowns, the first for 15 years. A hopeful sign is that this time round unemployment is still going down, so that’s different from the last housing market crash.

“The slight worry in the back of the mind is there may still be a little bit more of the Northern Rock problem to come. We are not quite sure what the impact of high levels of consumer debt will be in the next six months, but we can be optimistic because of the good employment situation.

“I certainly think that interest rates have peaked. Any change is going to be downward from here on.

“Falling house prices at the moment are more of a correction than a calamity.”

billgleeson