The Economic Climate

The economic situation is the worst since 1997. We have the twin impact of the credit squeeze and rising mortgage rates which are helping to slow down the economy, while at the same time rising prices of food, gas an fuel are reducing real disposable income and creating real inflationary pressures.

The Bank of England would like to reduce interest rates to counteract an economic slow down, but that will not be possible while inflation is in excess of 3 percent.

2 further related problems are falling house prices and demand for wage increases. House price falls in most cases will have no effect on individuals, but if people have borrowed more than the house is now with and then have problems in paying negative equity can become a real problem. Many people have also been using rising house prices to enable them to re-mortgage and provide credit for other purchases and if this is not now possible consumer demand could be hit.

Inflationary pressures in the 1970s from oil price shocks sent prices and wages spiralling by over 20 percent per year. The blunt message is that neither the private or public sector can compensate people with increased wages for external in prices of food and fuel . That way would lie the potential to destroy future economics prosperity and growth. The stark reality is that for many living standards will stagnate o even fall in the next 12 months and all the government can try and do is protect the most vulnerable by increases in a payments of fuel allowances and child benefits and also consider a tax on the windfall tax on the profits of energy companies