The US is Heading for Recession – Who Cares?
You’ve probably heard the news - shares on the FTSE 100 plummeted passed the 6000 point mark and the newspapers are giving us regular updates on market turmoil. While the stock market might be the least of your worries, it is often an indicator of things that are set to come. Fears of a global recession are mounting.
A recession is negative growth within a country’s economy for two or more consecutive quarters. That means a squeeze on profits and a possible rise in unemployment as people are laid off. Certainly such a situation is worrying, but it seems that it is unlikely to happen here. Mervyn King, the Governor of the Bank of England, has recently stated, ‘it's going to be a pretty difficult year with slowing economic growth, unemployment rising but the cost of money not coming down as much as businesses and consumers would like.’ Such a statement does seem gloomy, but it doesn’t hint at a fear of recession, and the UK economy is fundamentally sound.
Despite the unlikelihood of a recession, there are plenty of other issues that may be of concern in the coming year. Small business may feel the pinch of people reigning in their spending as they contend with higher prices. It will also be more difficult for them to raise cash from banks. The era of cheap credit is now over, and a credit crunch has begun after stemming from careless lending in the US housing market. Banks are going to be much more cautious about lending, and even though the Bank of England’s base interest rate is set to fall, we may not see this fall on all mortgages and loans. If you need to refinance in the coming year then take a look at ASDA Finance. They offer secured loans and unsecured loans that you can apply for online at good rates.
If you have shares, then 2008 isn’t set to be a great year if you’re looking to sell. Stock markets have taken a tumble, and financial shares have been getting pummelled for some time – just take a look at Northern Rock. The golden rule is not to panic. Selling now probably won’t be a great idea. Conversely, while everyone else is selling, it’s probably a good time to buy, because prices will be cheaper, and experienced investors will be looking to snap up a bargain. If you have long term investments in fund or an ISA, then you probably don’t need to worry. It is unlikely that a recession will be long lasting, and the stock market will almost certainly recover in the long term. One thing you shouldn’t do if you’re new to stocks and shares is play the market by speculating. With market volatility set to remain for most of the year it is probably that inexperienced speculators will lose big.
Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
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