Britain plc grinds to a halt

THE UK economy has ground to a halt after 16 years of growth, piling fresh pressure on Gordon Brown, the Prime Minister, to come up with a recovery plan.

Zero growth was recorded for the second quarter of this year, the Office for National Statistics revealed. Economists warned Britain is now likely to head into recession – defined as two quarters of negative growth.

Stewart Robertson, of Morley Fund Management, said: "The Bank (of England] needs to do something to prevent a fairly shallow recession from getting worse. They need to cut (interest] rates this year."

Construction and manufacturing were the sectors hit hardest, as the house-price slump and credit crunch took hold.

The gloomy forecasts will trigger a fresh crisis for Labour, as the government plans to unveil a recovery package next month to help cash-strapped households.

Economic data has not been so weak since 1992, the last time the UK was in recession. Forecasts by Alistair Darling, the Chancellor, that the economy would grow by 2 per cent this year and 2.5 per cent in 2009 look unlikely to be fulfilled.

The official figures for the second quarter are also worse than the 0.2 per cent growth predicted and the 0.3 per cent growth recorded for the first three months of this year.

George Osborne, the shadow chancellor, said the Prime Minister's "bubble had burst".

"For years, Gordon Brown boasted about consecutive quarters of economic growth. Now economic growth has ground to a halt and Brown's bubble has burst," Mr Osborne said.

Vince Cable, the Liberal Democrat economic spokesman, said: "We're now seeing the full extent of the self-delusion which led ministers to believe that everything was well with the British economy."

A Treasury spokesman blamed the figures on global factors such as surging oil prices and the credit crisis.

He said: "The UK, like other economies, is seeing the consequences of globally high commodity prices, as well as the uncertainty in the credit markets.

"The government's priority is to guide Britain through these challenging times, while also supporting those hit hardest as a result of these global factors."

But the assurances did little to alleviate economists' fears.

Geoff Dicks, chief economist at the Royal Bank of Scotland, predicted that the economy would contract between 0.3 per cent and 0.1 per cent in the third and fourth quarters of the year.

"The implications for unemployment and the public finances are grim," he said.

And Jonathan Loynes, at research consultancy Capital Economics, said there was a "very strong chance" of recession, adding: "Things will be considerably worse in 2009."

Next month, the Prime Minister is expected to unveil an economic package to help families grappling with soaring energy bills and housing costs.

Fears of a recession will also add pressure on the Bank of England to cut interest rates.

Business leaders and unions called for the Bank's Monetary Policy Committee (MPC) to cut rates to aid the ailing economy.

The demands will cause a dilemma for the MPC, however, as the cost of living is soaring towards 5 per cent and a cut in rates will only worsen inflation worries. Rates are expected to fall later this year, when inflation is predicted to have peaked.

HBOS unveils plans to close Halifax branches as it feels pinch

HBOS is closing 53 of its estate agent branches due to the housing market downturn.

The closures will lead to up to 100 job cuts, although the group said most staff in the affected branches – all of them in England – would be transferred to similar roles in its banks.

It said the move followed a need to reshape the business after a significant decline in housing transactions.

The group declined to give details of the branches affected as it is still in the process of contacting staff.

But it said that, following the changes, Halifax Estate Agents would concentrate on its core markets in the Midlands and the north of England, where it has 151 branches. Halifax is working with the unions Accord and Unite on the move.

An Accord spokesman said it was working with members to help them make the transition from an estate agency to a bank branch, but it added that the job cuts were not a major issue, given some of the job losses being made by estate agents.

With prospective buyers putting their dreams of a new home on hold until the market settles and credit becomes easier to obtain, transactions have halved, hitting estate agents hard. Recent figures from the National Association of Estate Agents showed that estate agents sold an average of just six properties each in July.

Halifax has also been one of the worst affected banks during the credit crisis, its profits plunging by 70 per cent.

Andy Hornby, the chief executive of HBOS, recently said he would consider disposing of some of the group's assets, and predicted that house prices would fall by 18 per cent over 18 months.

Estate agents cut staffing levels as market slows

PROPERTY solicitors in Edinburgh have slashed staffing levels as the housing market slowdown hits their business.

Leslie Deans & Co and VMH have each made up to ten staff redundant, while Warners is understood to have cut up to 25 posts.

All of Neilsons' 50 staff, including partners, are working a four-day week to avoid redundancies.

Sluggish sales have been blamed – experts say flats bought as new builds within the last two years are now selling for as much as 20 per cent less than they were bought for.

There has also been a sharp rise in the number of fixed price properties coming on to the market, with some selling for below the advertised price.

Philip Valente, managing partner at property solicitors VMH, which has four offices in the city, confirmed that he had been forced to make staff redundant.

But he said he was confident that the market would pick up by the end of next year.

Steve Spence, senior partner at Neilsons, said he was confident first-time buyers would come back to the market because "there has never been a better time for them to buy".

Leslie Deans said his five branches were struggling to sell any recently-built flats and those that did sell were going for a fifth less than the price originally paid.

Mortgage improvements

THE cost of two-year fixed-rate mortgages is back at the level it was in August last year, when the credit crunch first began to bite.

The average rate is now 6.59 per cent, against 6.56 per cent in August last year, well down on 7.08 per cent for early July, according to financial information group Moneyfacts.co.uk.

But arrangement fees remain higher than last year, and lenders continue to demand large deposits to secure their best rates.

The number of products available is still well down on August 2007: 3,748 deals are currently available, against 13,027 last year.