Capital Economics ’surprised by scale of crunch’

Posted 2008-04-14

Leading macroeconomic research consultancy Capital Economics has revealed its surprise at the far-reaching impact of the credit crunch.

Paul Dales, a UK economist with the firm, said that he was somewhat taken aback by "how marked the rises in mortgage lenders rates have been, how widespread it has been and how many lenders have had to pull different mortgages".

He refrained from some of the more pessimistic assessments of colleagues in the industry, insisting that while the Bank of Englands latest interest rate cut was "not particularly encouraging", it was also "not really surprising".

Commenting on the perception among many consumers that banks and other financial institutions have held back from passing on the cut in a bid to raise profits, Mr Dales said this was not entirely accurate.

"Theyre holding their mortgage rates higher because they are subjected to higher funding costs from the wholesale market," he explained. "I think if their costs go up it makes sense for them to pass them on, to a degree."

The Bank of England this month confirmed that mortgage approvals have hit a 13-year low.

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