Royal Bank of Scotland Group Plc is apprehensive about the future
In an article published less than a week ago, Fiona Moriarty, director of the Scottish Retail Consortium commented on poor summer weather and its effect on commerce: "Persistently poor weather has led to the biggest slump in like-for-like sales growth in more than a year with many consumers ignoring the lure of heavy discounting". It appears that umbrellas and not sunglasses and flip flops were the hottest accessory this wet, brooding summer. “Consumer confidence was also dampened by the recent sequence of interest rate hikes with the latest increase in July undoubtedly making retailers nervous.” A week ago we did not know what comes our way. In just a short week “dampened” and “nervous” transformed into ‘flooded’ and ‘hysterical’, thousands households are left without electricity and running drinking water. The expectation that interest rates will rise again this year becomes a certainty. Lower utility bills that pushed Britain’s inflation rate down last month all but lost their significance. The Office for National Statistics UK reported that over 60% of the county’s country's £6.5 trillion wealth national wealth rests in its real estate. In fact, in an annual profile of UK’s assets, the Office for National Statistics reported a £326bn increase since 2005. The Royal Bank of Scotland says that a decade ago, the average cost of buying a home was under £100,000. Today the average nationwide cost of property is close to £200,000. Sixty years ago, the average price of a property in Britain was under £2,000, and according to the experts in the Guardian, it was possible to purchase a detached house in Blackheath, London, complete with garden and orchard just for £3,000.
The Guardian reports that figures for the UK's capital assets, according to the Office for National Statistics, show that measurable wealth is over five times the amount of the GDP (gross domestic product), or an annual output of the economy. That underlines the excruciating importance of the UK housing market, and therefore, economy’s vulnerability to any potential problems associated with housing market.
Most recent natural disasters, which will end up costing billions to the insurance companies and individual households, will have a large negative impact on the economy. The Office of National Statistics, however, maintains that the cost of an actual house rebuilding and repairs did not rise at the same rate the property price inflation does annually, hence the actual cost of the flood will be less than originally expected. In terms of its economic impact, the flood occurred at an especially unfortunate time. According to Royal Bank of Scotland Group Plc, losses on U.S. subprime mortgage suffered on corporate debt markets only few weeks ago, may result in company defaults and deflation of its share prices. ''When fear takes hold, we can quickly see forced selling, forced hedging and the creation of a vicious spiral,'' Janjuah, said in the report published yesterday. ''And if this happens, global confidence in risk assets will deteriorate even faster and even more deeply than anything we have seen so far,'' said Royal Bank's chief credit strategist Bob Janjuah in a report published on July 23. He predicts further ideally, but not likely, contained losses. According to Janjuah, ‘sunny’ is not part of the financial forecast. As rescue and emergency services are attempting to restore order, risk management companies brace themselves for the impact. The day when all home protection insurances are filed, will be black indeed.
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