Predictions for Share Prices to fall 2008

Mervyn King, the Governor of the Bank of England, took the unusual step of predicting the potential for a sharp fall in share prices.
With continued weakness and fragile confidence in global credit markets, the desirability of such a statement may be questioned. However, King points to these factors.

• The impact of the credit crunch (shortage of funds for borrowing) has not been fully appreciated by the stock markets
• The impact of the sub prime crisis has not finished. Many borrowers are coming to the end of their introductory (balloon) periods. When these ends they will be faced with much higher interest rates. Therefore, there is scope for greater mortgage defaults in the future.
• Potential for slowdown in economic growth in UK and US. This is related to the slowdown in the respective housing markets.

Because of this Mervyn King says Interest Rates are forecast to fall in the UK

In other news:

• Inflation rose to 2.1% (from 1.8% last month)
• Unexpected fall in retail sales in October
• Pound fell to 4 month low against Euro, on predictions of interest rate cuts