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P NRKETS
Page 10
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Credit crunch is likely to cut demand for road transport
by (River Dixon THE COLLAPSE and subsequent sale of the US investment bank Bear Steams for just 10% of its pre-crisis market value could mark a new low in the current financial problems that are affecting not just the US, but, increasingly, Europe and Asia.
In the past month, funds under management by Carlyle Capital and Peloton have both collapsed. Lehman Brothers has seen its value drop by more than 20%, and Terry Smith, chief executive of London-based Tullett Prebon, told The Independent: -I've been working in finance in the City and worldwide for 34 years, and I've never seen anything like this. I don't think anybody alive has seen events of this seriousness and magnitude affecting the markets.
According to David Miles, the chief UK economist at Morgan Stanley, the UK now has a greater than one in three chance of entering recession this year.
What is as yet difficult to gauge is the likely impact on consumer spending, and the subsequent effect on demand for road transport. If nothing else, it seems likely that more restrictive lending policies will reduce demand for big-ticket items, which are frequently financed by debt. Moreover, with both business and consumer confidence within the UK at a six-year low, it is probable that 2008 will see greatly reduced consumer activity, and the knockon effect into the supply chain will almost inevitably be negative.
"Government finances are stretched, so there is not a lot of room to ease fiscal policy," says Schroders chief investment officer Alan Brown, quoted by Thomson Financial. "Government spending is peaking, the housing market is in the early stages of setback compared with the US with all the likely knock-on impact on consumer spending.
"And the export sector is having to deal with the effect of a high pound. So, you've really got everything conspiring against us at the same time."