Collapse?

While Brown addressed the Israeli Knesset the City had to digest the latest ITEM report from Ernst and Young, which included the following in its introduction: The economic outlook goes from bad to worse… Economic prospects have deteriorated badly over the last three months. Oil prices, which had just passed $100 a barrel when ITEM’s last forecast was made in early April, are now just shy of $150. Food and energy costs are set to push CPI inflation above 4%, delaying the prospect of further base rate cuts. The all-important service sector survey balance fell back to 47.1%. More of a surprise in view of the healthier prospects for exports, the balance for manufacturing fell by nearly 4 points to 45.8%, lower than at any time since 2001. The FTSE100, which was trading at around 6000 at the time of ITEM’s Spring forecast, is now testing 5200. The LIBOR-base rate premium has moved back up close to 1%, so market interest rates are higher despite the base rate cut in May. The wholesale markets remain frozen and the mortgage market has moved from feast to famine. Commercial and residential property prices are falling and the CIPS purchasing managers balance for construction plunged to 38% in June, the lowest since this survey started in 1994. …with the housing market collapsing… New mortgage approvals crashed in May. The figure of 42,000 was down 28% on April and 64% on a year earlier. The number of families moving house fell back to 100,000, about 40% down on the ‘Economic outlook for business’ summarises the latest UK quarterly forecast by the ITEM Club, and gives its assessment of the implications for business Ernst & Young is the sole sponsor of the ITEM Club, which is the only independent economic forecasting group to use the HM Treasury model of the UK economy. Its forecasts are independent of any political, economic or business bias............