A MULTI-TRILLION dollar US government move to tackle the cause of the global credit crunch may do little to ease the pressure on British consumers, experts warned yesterday.
The gloomy outlook follows the US Treasury takeover over of Fannie Mae and Freddie Mac – the companies that hold nearly half of the country's $12 trillion (£6.8 trillion) mortgages.
The pair are responsible for £2.7 trillion of home loans, but hav
e lost £8 billion in the past year because of the plummeting US housing market, which triggered a downturn in Britain.
Major British banks were forced to write off billions because of their exposure to the struggling US housing market through complex investments since the credit crunch began last year. This forced them to cut mortgage lending.
The US Treasury announcement on Sunday prompted a surge in the financial markets.
The rescue sent some of the UK's biggest banking stocks rocketing to double-digit gains as the move to prop up the pair offered hopes that a further slump in the US housing market might be prevented. HBOS and the Royal Bank of Scotland gained more than 11 per cent.
However, trading on the London Stock Exchange ground to halt for nearly seven hours yesterday after a computer crash, which some linked to the high volume of trading following the move.
There was a widespread welcome for the US action, but economists and analysts doubted when, if at all, it would have an impact in the UK.
Andy Hornby, the chief executive of HBOS, one of Britain's biggest mortgage lenders, said it did not alter his prediction at the weekend that the credit crunch would take 18 months "to play through the system".
Howard Archer, the chief European economist at consultancy Global Insight in London, said it was not the end of the problems plaguing world markets. "Obviously, it brings a bit of confidence and reduces uncertainties, and it's a welcome move. It helps matters, but there are other significant problems.
"European inflation, weak consumer confidence, low investment, falling employment and tight credit were all stoking fears of recession – both on the island and the continent."
David Rosenberg, an economist with Merrill Lynch, said: "We find it difficult to see how it is bullish that the heavy hand of government is needed to such an extent. The takeover of Fannie and Freddie is actually a testament to how broken the financial system is."
Christopher Low, chief economist at FTN Financial, said: "This euphoria might fade, because Fannie and Freddie are not the problem. Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision."
However, Alistair Darling, the Chancellor, was upbeat. "
I think it will help, for this reason – the American economy is by far the largest in the world and it affects our economy and it affects every other economy. And anything that is done in America that will help build confidence must help."
The full article contains 502 words and appears in The Scotsman newspaper.
