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Updated:07:31, Wednesday December 05, 2007

The credit squeeze is having an impact finally on consumer confidence.

Fewer people expectedIt fell by a record level in November as the gloomy economic news of the past few months took its toll.

Continued uncertainty about the credit crunch, higher food prices and petrol breaking through the £1 a litre barrier have all combined to hit consumer sentiment, Nationwide Building Society said.

Confidence fell on all its measures during the month, with its main consumer confidence index dropping by 12 points to stand at 86, the group said.

The fall was the biggest recorded in a single month since the index was first launched in May 2004, and the slide put the index back to levels last seen in February this year.

At the same time the group's spending index, which monitors people's willingness to spend money, fell by 14 points to its lowest level since the survey began.

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That suggests retailers could be heading for a difficult Christmas.

It also echoes a GfK/NOP survey last week which found consumer confidence was at its lowest level in more than four years.

Around 57% of people now think it is a bad time to make a major purchase such as a house or car, up from 51% in October.

And just 35% think it is a good time to purchase household goods such as electrical items, compared with 40% in October.

Some of this fall was due to seasonal factors, Nationwide said, with people delaying buying goods until the sales began.

But, it added, that weaker sentiment about the future of the economy and jobs was also taking its toll.

"We've been expecting consumers to react to the events of recent months for some time so the fall in the index this month was not a surprise," said Nationwide's Fionnuala Earley.

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December 5, 2007

Gabriel Rozenberg, Economics Reporter
Britain’s mortgage lenders face a £30 billion funding shortfall next year if the Bank of England does not step in to ease the credit squeeze, the industry’s lobby group said yesterday.

As much as a third of the £90 billion required to finance the demand for mortgage loans expected next year will need to come from money markets that effectively have been closed since August, the Council of Mortgage Lenders (CML) said.

But as the CML pleaded with the Bank to intervene to prevent a severe contraction in the availability of mortgages, banks were told to get their own house in order by the City’s regulator.

The Financial Services Authority (FSA) said that lending conditions could get worse and that lenders should forgo profits to protect themselves against a collapse in liquidity of the sort that crippled Northern Rock.

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The stark warnings, presented yesterday at the CML’s annual conference in London, come at a time of deepening gloom over Britain’s mortgage market. New loans for house purchase are down by 31 per cent over the past year and all big surveys have shown house prices falling in recent months.

Funding stresses in the London money markets continue to mount. One-month sterling interest rates for loans between banks rose still further yesterday, after they leapt on Monday to a nine-year high, registering the sharpest gains for 13 years.

Michael Coogan, the director-general of the CML, said that the Bank of England needed to take the lead in restoring confidence by allowing a wider range of mortgage-backed assets to be posted as collateral against loans. He said: “It is not an arcane issue – this is an issue that could affect every consumer in the UK. If the markets don’t open up we will have a much smaller, less innovative mortgage market going forward.”

The Bank should also help to restore confidence in wholesale markets by cutting interest rates tomorrow, he added.

But Clive Briault, the head of retail markets at the FSA, said that banks should “assume that market conditions will remain very difficult for a sustained period”.

He urged them to ensure that they had adequate levels of liquidity, despite the higher costs involved at present. “But it would be prudent to pay a correspondingly high price – and to forgo some profits – to secure this protection, or otherwise to scale back balance-sheet growth,” he said.

Firms should carry out robust stress testing and examine what state they would be in if they had no or only limited access to wholesale funding for a sustained period, Mr Briault said. They should also make contingency plans for the worst outcomes.

He told lenders: “There is almost certainly more change to come. It is very unlikely that we will return to the conditions that prevailed before August . . . It is clear that some business models are no longer as economically viable as they used to be.”

Homeowners with high loan-to-value ratios on their mortgages will face heavy difficulties refinancing their loans next year and many will face unaffordable rates, he said, but banks should not forget their obligation to treat struggling customers fairly.

Mr Briault added that sub-prime borrowers might not have access to the market at any price until normal conditions returned.

The mood was darkened further by a research note from Morgan Stanley, the Wall Street bank, saying that it had removed Bradford & Bingley from its banking portfolio. “Our UK banks analysts suggest international investors should avoid UK banks at the moment, given the structural and systemic issues,” it read.