UK squeeze alert
THE Bear Stearns crisis, which broke overnight in the US, could tighten the squeeze on UK consumers and industry for a long while to come, a leading North-east analyst warned this morning.
The stricken US investment bank was bought by financial services giant J P Morgan Chase for £236.3m. At just $2 a share, it represented a fraction of Bear Stearns’ value on Friday.
James Rainbow, divisional director and investment manager for Brewin Dolphin, warned it could destablise UK markets and further dent investor confidence. He said: “Things could get worse before they improve. The Bear Stearns news could prey on the minds of anxious investors. Markets and investors don’t like uncertainty.
“UK banks that have increased exposure to the US will be affected most,” he wanted.
Simultaneously, the Federal Reserve made more cash available to Wall Street investment houses. But the move - described in some quarters as the most worrying since the US depression of the 1930s - has done little to improve global market confidence. This morning the Hang Seng plunged by more than a 1,000 points or 5% and UK investors were braced for more turmoil after sharp losses in bank stocks on Friday afternoon.
The Federal Reserve is widely expected to cut rates this week by one half of a percentage point, effectively bring them down to below the rate of inflation.
Alastair Thomson, head of Teesside Business School and chairman of the Institute of Directors, said business should not expect the Bank of England to follow suit.
“The Bank of England is primarily responsible for managing inflation, not worrying over whether homeowners can pay off their mortgages and bills.”
