The chickens are coming home to roost

HSBC's economy warning | ThisisLondon

That cheesy grin... That self congratulatory pat on the back around budget time... Prudence... Locking in stability...

A leading City economist today warned that the high street is set for two more years of gloom.

John Butler, chief UK economist at HSBC, said consumer spending will slump to its weakest since the early Nineties recession as household debt grows, unemployment rises and the property market stagnates.

That will force the Bank of England to cut interest rates from their current level of 4.75 to four per cent by the end of next year.

The warning comes a day after official figures showed Britons spent less in the shops last month than a year ago - the first annual fall since 1967.

That wouldn't be down to the fact that Britons collectively owe over £1 Trillion? Would it?

Meanwhile, the burden of consumer debt will grow even if rates stay on hold, he said. There is already evidence that Britons are struggling to service their borrowings after five rises in interest rates in the past 18 months.

UK consumers owe more than the combined national debt of Africa and South America. It is not suprising we find ourselves in such a predicament.

Loan write-offs and revaluations by banks reached £6 billion last year, the highest since records began in 1993, and the number of repossession orders has soared.

Boom and Bust anyone?

About 70 per cent of the jobs created since 1997 have been linked to the expansion in consumer spending and the property market, Mr Butler estimates. That means employment will suffer as the housing market stagnates.

That is a scary statistic. I have stated before that the economy is being propped up by consumer spending which in turn is linked to our massive levels of debt.

When the steam runs out of the consumer spending boom, people will lose jobs. This will lower the tax take and force Gordy to raise taxes.

Higher taxes on top of ever increasing unmanagable levels of debt are excellent ingredients for a recession.

High taxes and large debts will hit consumer spending even harder (even a retarded gorilla could spot this rather obvious vicious circle).

Lower consumer spending will dent company profits which will hit the stock markets.

Uncertain stock markets will probably dent your ISA's, Endowments and Pensions (which Gordy has already nicked over £40 billion from).

Lower interest rates may make your mortgage cheaper, but it will also devalue your investments.

Oh, and if house prices slump, that is less equity to free up (not that you could afford to free it up).

Like I said... That cheesy grin... That self congratulatory pat on the back around budget time... Prudence... Locking in stability...

Why people want this man as PM over Tony Bliar is completely beyond me.