The governor of the Bank of England, Mervyn King, has warned that the US sub-prime mortgages crisis poses more risks for the UK’s financial system.
He also revealed that it was Chancellor Alistair Darling who decided not to support a Northern Rock takeover bid.
Mr King told the BBC he had advised the chancellor that governments should not provide financial help to one company so that it could take over another.
The boss of one of Britain’s biggest retailers has warned of tough times on the High Street.
Comet’s Hugh Harvey admitted sales of big value electrical goods like fridges and washing machines were suffering as shoppers tighten their belts.
Mortgages, fuel and utility bills are all going up and the consumer is feeling the pinch.
Mr Harvey told Sky’s Jeff Randall that although sales of “white goods” were being hit, they were more than offset by new technology.
Gordon Brown is facing an economic downturn next year as he struggles to recover from the humiliation of being forced to call off an autumn general election.
Amid signs that the “feelgood factor” is on the wane, a study out today finds the squeeze on people’s spending money is at its worst level in at least 10 years, thanks to higher tax bills and the rising cost of essentials such as food, fuel and mortgages.
And while consumer activity has been relatively robust over the summer, surveys show that confidence in the economy has been shaken by the fallout from the bank lending crisis which led to the run on Northern Rock, the troubled mortgage lender. The darker outlook was one of the reasons why ministers close to Mr Brown were keen to fight an election now.
In its study today the utility website uSwitch.com said that a 42 per cent rise in the cost of essential household goods meant that disposable income now stood at its lowest level as a proportion of overall income since 1997. According to the Office for National Statistics, income levels have risen by just 1.1 per cent in real terms over the past year.
Chancellor Alistair Darling said in an interview published on Friday that the global credit squeeze will affect the economy, but did not say whether he will lower his growth forecast for 2008.
“If you look at the consensus of the economic forecasters, it would be prudent to assume that (the credit squeeze) will have some effect on us here,” Darling told the Financial Times.
“If you look across the world — given the importance of the U.S. economy and given what’s happened here in relation to the effect it will have on the availability of credit –it would be fairly odd if you didn’t take account of that,” he said.
The Treasury is preparing its pre-budget report and three-year spending review, but no date has been set for their publication.
GDP growth is officially forecast at 2.75 to 3 percent for 2007 and in a range of 2.5 to 3 percent for 2008.
The Bank of England left its key interest rate unchanged on Thursday at 5.75 percent for the third month running, but many people expect it to cut rates later this year as the credit crunch in global markets starts hitting the broader economy.
Household budgets are showing signs of strain after it emerged Britons saved the smallest slice of their incomes since early 1960.
The Office for National Statistics (ONS) said its household savings ratio – the proportion of disposable income not spent – fell to 2.1% in the first quarter of 2007, compared to 3.9% in the previous quarter.
The figure, which represented the lowest savings ratio since the first three months of 1960, came after a surprise hike in interest rates in January, following two previous increases in August and November.
While consumption was reasonably strong in the first quarter, analysts said the pressure on savings suggested that spending could now start to slow.
An influential forecast group is worried about the risks individuals, firms and ministers are taking with amounts borrowed.
Ernst & Young’s Item Club spring forecast said people are “overly relaxed about risk” and are “spending as if it was going out of fashion”.
Club chief economic adviser Peter Spencer said: “The bottom line is that we are all living beyond our means.”
The Treasury said the UK’s performance and household finances remained strong.
The report highlights the current deficit in the public sector and expresses surprise that it built up at a time of economic strength and buoyant tax revenues.
“If the Chancellor is forced to borrow so much when the economy’s so sweet, what will happen when it turns sour?” Mr Spencer asked.
Consumers must rein in their borrowing levels if a downturn in the UK economy is to be avoided, a report has warned.
The Ernst & Young Item Club’s latest report says that the strong UK economy rests upon shaky foundations, with excessive levels of household debt posing a serious threat.
It states that through mortgages, credit cards and other loans, borrowers have racked up £1.3 trillion in debts, putting the long-term stability of the UK economy in jeopardy.
“The problem is that we are now becoming a little bit too confident and the lenders are relaxing their criteria and we’re all gearing up appropriately,” the Item Club’s chief economic adviser, Peter Spencer, told BBC Radio Five Live.
“Of course that’s great in the short term but for the longer term it does pose risks.
“We are borrowing to finance our consumption and of course we’re doing that at a time when the economy and everything else, our personal finances, are looking pretty sweet. The worry is what happens to our own finances when things turn sour.”