Worrying numbers rather than healthy cereals were being crunched when Gordon Brown breakfasted with Britain's leading bankers yesterday. Inflation may have stayed steady at 2.5% last month but gloomy figures from the Royal Institution of Chartered Surveyors confirm that house prices in many parts of Britain are already falling. Scotland appears to be bucking that trend, but only just, with both new buyers and potential sellers sharply down. And with thousands of homeowners nearing the end of fixed-rate mortgage deals, the outlook is bleak.
Worrying numbers rather than healthy cereals were being crunched when Gordon Brown breakfasted with Britain's leading bankers yesterday. Inflation may have stayed steady at 2.5% last month but gloomy figures from the Royal Institution of Chartered Surveyors confirm that house prices in many parts of Britain are already falling. Scotland appears to be bucking that trend, but only just, with both new buyers and potential sellers sharply down. And with thousands of homeowners nearing the end of fixed-rate mortgage deals, the outlook is bleak.
The money-men were wanting the Bank of England to put more funds into the system to revive stuttering interbank lending. In return, Mr Brown wanted banks to start passing on recent base-rate cuts to customers to resuscitate the flagging housing market, though the Prime Minister has no power to force lenders to make mortgages cheaper.
Caution is required. Britain's housing market has not been dogged by American-style sub-prime lending; nevertheless, a measure of corrective medicine is desirable. In recent years credit has been too cheap, lending too risky and personal debt too high. However, medication can do more harm than good if the dosage is wrong. It is all very well to say banks should be forced to live with the consequences of their poor lending and investment decisions but if mortgages dry up completely nobody is going to be rubbing their hands. That scenario would not only shatter the hopes and dreams of a generation of first-time buyers but would probably lead to a collapse in consumer confidence that would have a disastrous knock-on effect on the entire economy in terms of repossessions and unemployment. This is precisely what Mr Brown is at pains to avoid.
On the other hand, if banks were given everything they asked for - probably in the region of £30bn in cheap long-term loans - many believe taxpayers would be exposed to unreasonable risk. In the event, the Bank of England responded yesterday with an injection of £15bn. It is incumbent on the banks not to use it to shore up their balance sheets and instead make a cautious return to the marketplace. Hoarding and hoping helps nobody.
Last week bankers warned the government against "legislating in haste", but after decades of deregulation, the quid pro quo for helping lenders back on to their feet must be a measure of enforced transparency. The least worst outcome remains a soft landing for the British economy.
Meanwhile, consumer confidence is finely balanced between hope and fear. In such a climate it is vital that we do not talk ourselves into recession, as the International Monetary Fund did by describing the global credit crunch as "the largest financial shock since the Great Depression". As things stand, the British economy is still growing, albeit slowly. Nil desperandum.
