For the past 3 months, the news is still the same, but another word is creeping in now, inflation to join credit crunch and recession. It is not just the UK that is in the mire, a small German bank has closed its doors , Weserbank shut up shop this week, due to a change its business model.
Business model, thats a good phrase to use, and I expect we will hear a great deal more of that particular phrase as the year progresses. It is when the tide goes out, and it’s certainly ebbing quite fast, that you find that business models that looked good when times were OK, are suddenly on sinking sand. Companies that are too relient on banks for overdrafts and loans, and are highly geared, are coming under increasing pressure on two fronts, the increase in the price of credit and the reduction in available credit.
The very fact that on the day that the Bank Of England cuts base rate, some building societies and banks are actually put up theirs. It is no co-incidence that the institutions are repricing their loans. They are under pressure to recoup some of the losses that they have had to swallow, and also what they expect to have in the near future.
We now come to inflation, a word that had almost disapeared over the last 10-12 years. The Bank of Englands target rate of inflation is 2%, but with the increase in fuel, food and energy prices, inflation is back into the system. So as the song says, “its a long and winding road “, but where it will take us, I have no idea ! The only plus is that with leasing, it is a fixed cost through out the period, so it’s a built in hedge against inflation; so at least with leasing, there is a silver lining.
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