PRESS DIGEST - Financial Times - March 28

Financial Times

MORTGAGE RATES LIFTED AS LENDERS FEEL PAIN

In moves that are likely to put further strain on the property market, three of the UK's biggest lenders tightened up the supply of mortgages and increased their interest rates. Nationwide increased the cost of two-year mortgage tracker rates for new customers by 0.57 percent to 7.1 percent and is increasing its fixed rate mortgages to 0.2 percent. Cheltenham & Gloucester and IF increased the prices of certain two-year tracker rates by around 30 basis points. The moves are a blow for consumers who are due to refinance mortgages this year, with Charcol's Ray Boulger saying he believes over 2.75 million people will be affected. The increased mortgage rates partly reflect the higher costs of wholesale funding for banks that has risen sharply in recent days. The three-month London Interbank Offered Rate has climbed to around six percent, the highest this year.

RATE CUT MAY BE NEEDED TO AVOID RECESSION, SAYS REPORT

A report from Michael Hume, chief European economist at Lehman Brothers, says the UK faces a slightly less than three-in-one chance of slipping into recession and that the Bank of England may have to aggressively cut interest rates to avoid following the U.S. downward spiral. Lehman Brothers is leaving its 2008 growth forecast of 1.7 percent unchanged but has cut its forecast for 2009 almost in half to 1.1 percent. One of the factors likely to hit consumption, and therefore growth, is a forecast house prices will be hit by tighter lending conditions and fall by 11 percent in nominal terms by the end of next year.

MIXED DATA ON IMPACT OF CREDIT CRISIS

A range of data released on Thursday reveals activity in the housing market remains at a low level but business investment has been stronger than thought and retail sales have steadied. The British Bankers Association said the number of mortgage approvals for house purchase rose from 43,732 in January to 43,870 last month, but that the number was still a third below the level of approvals in February last year. The Office for National Statistics reported business investment rose 1.8 percent in the fourth quarter of 2007, and the CBI's distributive trades survey showed retail sales steadied in March, with the balance of reported sales rising from minus three to plus one.

ECB SET FOR ACTION TO CALM FINANCIAL MARKETS

The European Central Bank said on Thursday it was prepared to take fresh action to calm tensions in the financial markets, as its president, Jean-Claude Trichet, dismissed suggestions that its emergency liquidity injections were posing inflationary dangers. The ECB, which this week injected extra seven-day funds in its regular auction, will have been concerned at recent rises in money market interest rates. Unicredit economist Marco Annunziata, said: "There is an underlying tension that has not disappeared and is exacerbated when you have a close look at the quarterly books." He said the ECB's concern about the pressures facing eurozone banks and the impact on the real economy appeared to have intensified since the U.S. rescue of Bear Stearns.