The latest report, which looks at various aspects of the UK economy states that it is expected that banks will shrink lending to consumers by nearly eleven percent through 2012; an increase of roughly four percent from a forecast in April.
The report blamed the double-dip recession for the weakness in lending, whilst the economic forecast for 2012 has also been downgraded as a result from 0.4 percent to zero percent.
Although it is expected that credit access for households will become tougher for the remaining five months of the year, the report states that the contraction for business lending should not be as much as originally forecast.
In spring, it was forecast that business lending would contract by 6.8 percent; however the revised forecast now expects it to contract by 6.2 percent – despite the announcement last month, of the Bank of England’s Funding for Lending Scheme.
Within its assessment of lending to the business sector, the report states: “Although the schemes should help to lower banks' cost of funding, some banks may be reluctant to access these schemes for fear of the stigma it could create in financial markets.
"The potential positive impact on lending may also be outweighed by the recent deterioration in the economy. Banks will remain reluctant to lend in this environment and demand for credit is also likely to remain weak across all categories of borrower."
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 539 )The Bank of England should be given the power to cap loan-to-value (LTV) ratios, according to the International Monetary Fund (IMF).
Within their latest report which looks at the UK economy, the IMF have suggested that the Bank of England’s Financial Policy Committee (FPC), should be given power to cap LTV levels, in an effort to prevent property price bubbles.
The idea to cap LTV’s had previously been suggested at the beginning of the year by the Chancellor George Osborne, who claimed that providing the bank with such powers could help prevent another housing crisis. However, the suggestion was met with a mixed reaction, with some suggesting that a cap could put off homebuyers, particularly first-time buyers.
Despite the previous mixed reactions, and issues caused by introducing a cap elsewhere in Europe, the IMF said within their report: “A broader macro prudential toolkit for the FPC is desirable. In particular, the power to limit loan-to-value and loan-to-income ratios is essential, as higher capital requirements alone are likely to be insufficient to restrain property bubbles.
"This will be especially relevant if most banks are comfortably above minimum capital requirements during the boom, such that higher risk weights on property loans may have little effect on banks' lending behaviour.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 2.9 / 592 )The Bank of England have signalled that interest rates could be cut to an all time low of 0.25 percent in the coming months, in another bid to stimulate the UK economy.
Minutes of July’s Bank of England’s Monetary Policy Committee meeting – which were released earlier this week – show that the committee are prepared to visit a further reduction in rates, amid a backdrop of recession and falling inflation.
The move to reduce the interest rates further would mark a key shift in the Bank’s policy stance; and it would also be the first move of interest rates since March 2009 when they were slashed to their current low.
According to the minutes, one of the decisive reasons for the change in stance is the recently unveiled “Funding for Lending Scheme” which is due to be launched in August and should limit any damaging impact a rate cut might have on banks’ or building societies’ ability to lend.
Within this months meeting, the MPC concluded that: “the impact of the Funding for Lending Scheme and other policy initiatives might, in time, alter the Committee’s assessment of the effectiveness of such a rate reduction.
"The Committee could review this option again when the impact of the Funding for Lending Scheme and other policy initiatives was more readily apparent; that was unlikely to be for several months.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 577 )HMRC have launched a new consultation on revisions to stamp duty in land tax rules as it looks to clamp down on schemes that claim to be able to mitigate the tax charge through the use of “transfer of rights” agreements.
Within the consultation paper, HMRC have highlighted a number of schemes which market themselves as being able to mitigate stamp duty using a loophole in “transfer of rights” rules, in which a property is purchased by one part and immediately passed onto another before completion.
It is reported within the consultation paper that some schemes have claimed no stamp duty is payable as the initial transaction is disregarded in line with the transfer of rights rules, while there was no consideration paid for the distribution of the property thereafter.
However, HMRC have said that this can be challenged, stating that it does “not agree that the distribution of the property occurs at the same time as the completion” and is therefore not covered by the rules; adding that there are “very good prospects that ‘subsales’ schemes of all types seen to date... can be successfully challenged”.
HMRC continues to say: “A number of promoters of stamp duty land tax avoidance claim that the particular wording of the current rules can be exploited to reduce or eliminate stamp duty land tax.
“HMRC and, we believe many others, consider that the rules when read correctly do not contain the perceived loopholes claimed by promoters of this abuse. It is, however, desirable to improve the legislation to stop such claims being made in the first place.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 660 )Figures released by the Office for National Statistics have revealed that the annual inflation rate, as measured by the Consumer Price Index (CPI) fell last month to 2.4 percent, compared to 2.8 percent in May.
It is believed that the rate of inflation – which indicates how fast prices are rising compared to the previous year – is slowing as a result of lower food, fuel and clothing costs; with the Office for National Statistics reporting that clothing and footwear was the biggest contributor to the recent fall in inflation, with prices being 4.2 percent lower.
Although inflation is still above the two percent target set by the Bank of England, CPI has been falling steadily since peaking at 5.2 percent in September last year; and it is widely believed that this latest fall could prompt the Bank of England to inject additional money into the economy via its quantitative easing programme.
The Economic Secretary to the Treasury, Chloe Smith said of the latest figures: “Inflation has more than halved since September, meaning a little less pressure on family budgets.
“This lower inflation should support high street spending and growth in the economy in the months to come.”
In addition to a fall in CPI, the Office for National Statistics have also revealed via their latest figures that the Retail Prices Index – which unlike CPI includes housing costs – has also fallen from 3.1 percent in May to 2.8 percent last month.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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