by Calculated Risk on 7/19/2008 05:49:00 PM

A few stories from across the pond ...

From The Times: UK economy heads for ‘horror movie’

BRITAIN is facing an “economic horror movie” because of a “toxic mixture” of a moribund credit market and volatile oil prices, according to a leading forecasting group.
...
Peter Spencer, chief economist at the Item club, said: “Both on the high street and in the housing market it is going to get a great deal worse before it gets better. We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled.
...
“The sharp fall in overall business optimism is very worrying and points towards a recession,” said [Graeme Leach, chief economist at the Institute of Directors.

Also from The Times: House prices tipped to fall 20% in two years

Howard Archer, of Global Insight ... said prices would plummet by a further 20 per cent, or £40,000 on average, before the market begins to recover.
...
Vicky Redwood, of Capital Economics, presented an even bleaker outlook, forecasting that the housing market would not recover until well into 2011.

Morgan Stanley, the investment bank, said that if prices fall by 25 per cent in the next two years, more than two million - or one in six borrowers - would be in negative equity.

And from the Telegraph: Alistair Darling may face £100bn budget deficit

Alistair Darling may see his budget deficit balloon to a record £100bn in the coming year as a potential recession bites, experts have warned.

The alert was sounded as the public finances lurched deep into the red ... Revenues from income tax, National Insurance, corporation tax, VAT and stamp duty have suddenly dried up as the credit crisis and downturn in the housing market hit the economy ...

The usual responses to an economic slowdown are for the Central Bank to cut interest rates (monetary policy) and deficit spending from the government (fiscal policy). Because of inflation fears and a ballooning budget deficit, it is difficult for the central bank and government to respond.