After an estimated £3 billion was withdrawn within a few days, the immediate crisis was eased when Chancellor Alistair Darling said the government would guarantee savings. Finance market sources suggest Northern Rock will be acquired.
Stephen Sklaroff, Finance & Leasing Association director general, says: “The effects of events at Northern Rock on the consumer car market must be kept in perspective, and may well be limited.
“Despite recent interest rate rises, consumer confidence has been maintained by attractive 0% and low rate finance agreements. These deals have kept the market robust over recent months.”
GDP growth is above trend at 3% and the CBI has revised its growth forecast upward for 2007, he says. Inflation has eased back to 1.8%, driven by a cost reduction in financial services and utility prices.
“It now looks likely that UK interest rates will stay where they are, or possibly even drop, in the reminder of 2007,” says Sklaroff. “In many ways, the greatest risk facing the industry will be a dangerous bidding-war be-tween the government and opposition parties as they call for more regulation of the credit markets. The FLA will be keeping a close watch on developments.”
John Woolley, managing director, Black Horse Motor Finance, does not believe a major credit squeeze is on the way, but says people are more careful because increasing rates have a knock-on effect onto mortgages and disposable incomes.
“Some will not be immediately affected by the rate increases, as they are still on fixed term rates, and it could take a number of years to see the full outcome,” he says.
“Money costs have started to edge down. The USA has reduced its consumer rates, which will help overcome some of its current issues and stabilize their housing market. This could lead to either a fall in rates, or at least a stabilization at the current level, rather than an increase, as was predicted.”
Woolley says Black Horse has followed increases in Bank of England base rates, but not increased its rates fully in line with them. “We’ll be watching markets carefully over the coming weeks and months to see what our next move will be,” he says.