It might be weak but the UK has experienced economic growth in the first three months of 2008.

Despite the economic slowdown and low consumer confidence the Office of National Statistics has reported that the UK economy grew by 0.4 per cent in the first three months.

The growth was reported in analysing the gross domestic product for the first quarter.

The growth is lower than what was expected by analysts, but GDP is still growing rather than contracting. Many expected the slowdown to be so steep that it would result in negative GDP in the first quarter.

The strength came from the service sector that grew by 0.6 per cent in the quarter. The biggest percentage decline was in mining and quarrying, which fell by 5.2 per cent.

There is a chance that the UK might just avoid a recession, and the lower growth might give the Bank of England the confidence to lower interest rates again next month to keep the balance sheet in the black.

The bank expects this slowdown to have a negative effect on inflation; it has yet to come to fruition with high food and energy prices maintaining pressure on prices.

Do we need a retraction in the economy before inflation starts to slide?

Maybe, but is it really worth the risk.

The smart money is on the Bank of England maintaining the base rate at its current levels, and wait to see if market weakness can reduce the inflation rate.

As we have seen in the last year or so, the market has more impact on inflation than any action by the Bank of England.

Chancellor Alistair Darling wants banks to help easy the credit crunch by passing on rate cuts, but banks will try to resist any weakness to their bottom line.

Historically banks have always been held up as institutions and safe sharemarket investments.

They were a safe haven and immune from financial trouble as they controlled the money. But if this credit crunch has proved anything it is that banks are like any other business.

They are exposed to slowdowns and credit troubles, not only does it increase the levels of bad debt on their book, but it also increases cost with credit markets tightening.

Need we be reminded of the long lines of customers abandoning Northern Rock late last year?

With these conditions there is growing economic pressure not to reduce interest rates to maintain profit margins, even with the base rate in decline.

Darling’s ‘request’ for relief for customers from the banks, will hold little weight with the banks that are seeing their ledgers drained.

Some banks have reduced their interest rate after the Bank of England reduced the interest rate by 0.25 per cent, from 5.25 per cent down to 5 per cent.

But the cost to homebuyers wanting to establish a mortgage has risen, it is the case of giving with one hand and taking with the other.

Darling comments were definitely a warning to banks, after also mentioning the rescue money that the Bank of England and the HM Treasury supplied to stressed banks and financial institutions was a show of goodwill from the government.

But these words are falling on deaf ears as all the attention turns to the US market that shows all the signs of being in a recession, and the banks asking each other how bad this slowdown will hit.

It’s official. The Bank of England and those with control over the purse strings are more concerned about the global economic slowdown than rising inflation.

Earlier this week the Bank of England reduced the interest base rate by 0.25 per cent, from 5.25 to 5 per cent.

This is the third rate reduction in a row, and it is a clear message to the market that central bankers are more concerned about the economic slowdown than increasing inflation.

The central bank expects economic growth in Britain to be around 1.5 to 1.75 per cent, but given the brakes that are currently influencing the economy many commentators believe the bank’s growth estimate is optimistic and a recession is unavoidable.

The central bank believes that a weak economy will put breaks on inflation, and the reduction in interest rates will not contribute to inflationary pressure.

“Even if commodity prices remain at their current high levels, inflation should fall back,” a statement released by the bank stated.

“But to ensure that inflation meets the 2% target in the medium term, the Committee needs to balance two risks.”

Only time will tell if the balance will pay off.

The current environment of record commodity prices and rising inflation (2.5 per cent), with a rapidly cooling economy and tight credit markets is putting up new challenges for economists.

How they deal with these market conditions could re-write the rule book on economic management.

The US is already looking at inventive ways to calm the market, and bring balance back to the economy.

Halifax, the UK’s largest mortgage lender, has turned its attention to borrowers with significant deposits.

To draw in this market Halifax is offering discount rates for borrows with capital.  The best rate is reserved for borrowers with 25 per cent or more of the property value.

For struggling first-home buyers looking to get into the market with low deposits, there are even tighter rules which attracts a higher interest rate.

It was not unexpected, with a tight liquidity market and greater value put on low-risk borrowers, there is a growing trend for lenders to look at the quality of their loan books rather than quantity.

Halifax’s new mortgage packages is only one example of how the credit crisis gripping the global markets will affect the UK credit market in the long term.

In the short term these new lending packages will contribute to a slowdown in mortgage approvals and overall housing market weakness.

However in the long term the tougher credit rules will strengthen the credit market and bring renewed confidence to the domestic economy.

The question is who has to hurt now, for a brighter economic future. The answer seems to be struggling homeowners who are already sailing hard into the wind of high household debt and raising costs, and renters who are facing higher rents and major hurdles to buy into the housing market.

These two large groups are usually the first to suffer in any period of economic slowdown.

Sub prime is a buzzword at the moment, and the way things are going it will soon earn an entry into the Oxford dictionary.

The meaning could be twofold: (n.) loans given with little or no security from the borrower, or (adj.) the description given to an economy suffering from poor management and slack lending standards.

Sub-prime the adjective is headlining the business pages at the moment.

It was used by BBC recently when reporting another write-down by Swiss financial group UBS.

UBS also announced that the chairman Marcel Ospel has stepped down in light of these latest write-offs.

There are financial companies out there with falling stock prices due to the “sub-prime crisis”, but have strong management and well-maintained balance sheets.

These companies will be the market darlings after the dust settles and the crisis is over.

But, now could be the right time to re-enter the market and pick up some of the stock on the cheap.

A word of warning however, it is important for any investor to do their homework, ask questions and make educated decisions.

Analysts and investors are concerned that, despite financial institutions writing off billions of pounds in the last quarter 2007 and this latest quarter, there is still billions unaccounted for as more borrowers struggle with their loans.

There may be a few more big institutions to fall yet, but you can be sure there are many companies out there with the right checks and balances in place to weather the storm.

Britain’s housing prices are down again but still up for the full year, according to one of UK’s leading credit society.

Nationwide has announced that housing price have fallen in March by 0.6 per cent, it is the fifth consecutive loss and extends the loss of 0.5 per cent recorded in February.

Property prices are still up for the full year by 1.1 per cent the lowest growth in 12 years.

“However, prices are still 11 per cent higher than two years ago and 47 per cent higher than five years ago,” said Nationwide’s chief economist Fionnuala Earley.

The major concern about these figures is that housing prices are continuing to deteriorate at a stronger pace.

While it is not as dramatic as the double digit falls seen in the US, the US example shows that a reduction in house prices can have a dramatic effect on the wider economy.

Housing price is one economic indicator that many analysts look at when gauging Britain’s long-term economy health.

It is an important indicator because for many people their homes are their biggest investment and deterioration in price is a reduction in household wealth.

If housing prices do not recover then Britain, like the US, may face a more severe slowdown in economic growth that affects more homeowners in the UK.

Everyone is feeling the bite of a slowing economy; even banks are finding it tough as funds start to dry up.

According to the Council of Mortgage Lenders (CML) gross lending declined in February to £24 billion from £25.6 billion in January.

This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity,” CML direct general Michael Coogan said.

Banks are facing higher interest rates to fund their own loan book.

This cost is passed on to the customer.  This begs the question, what influence does the Treasury have against the raging tide of the free market?

The answer is not much.

A bank is like any other business, it must pass costs to its customers to maintain profitability. A bank that doesn’t will suffer in the current economic climate of low consumer confidence and high borrowing costs.

We are seeing the effect of high borrowing costs in other countries. In the US the Reserve Bank is lowering the interest rate but banks cannot follow suit and offer customers the same savings because of the cost of borrowing.

To combat this problem the Reserve Bank is offering cash to US banks to help sure-up their balance sheets.

Central banks are being marginalized by the power of the free market.

So this raises another question. Will higher base rates from the Bank of England help curb the inflation rate? Only time will tell…

A peak business group has looked into its crystal ball about economic growth and it has found some numbers.

While some analysts are laying low until more substantial data about the direction of the economy is revealed , CBI has claimed that the Treasury’s forecast of Britain’s economic growth in 2008 of between 2.25 and 2.75 per cent was optimistic and growth was more likely to be around 1.8 per cent.

CBI went further in its analysis stating that inflation was likely to top 3.2 per cent before being reeled in, sparking a reduction in interest rates in the second and fourth quarters of this year reaching a base rate of 4.5 per cent.

The group also stated that low economic growth is likely to remain throughout 2009.

Do you think this forecast is specific enough? It is amazing what can be stated when the forecasters are not held accountable.

The Treasury would be held accountable on its forecasts.

The CBI forecast is just one of the many forecasts available on economic conditions in Britain, there are many business and financial groups gazing into the crystal ball at the moment and there is very little consensus.

Some are claiming the worst is over, while others are still talking doom and gloom.

No wonder the average investor is becoming confused.

It isn’t helped by the mixed signals coming from market data.

Employment is strong, but business investment and confidence is down, also the economy is contracting but inflation pressure is up.

When will it end?

The latest inflation figure released by the Office of National Statistics suggests Britain’s homeowners might not receive any interest rate cuts in the near future.

The latest figures showed inflation at 2.5 per cent.  Well above the Bank of England’s comfort zone of 2 per cent.

This is the second rise in as many months with the figure rising from 2.1 to 2.2 per cent in February.

Inflation is notoriously hard to manage with the trends difficult to reverse and although there is a new method of calculating inflation by the Office of National Statistics it is clear that inflation is on an upward move.

If the Bank of England starts rising interest rates to stem inflation there is a real possibility interest rates will be increased several times before inflation is back under control, particularly within an environment of rising energy costs.

In economic conditions like these it is important for homeowners to recalculate their home loans and determine what they can comfortably afford if rates increase.

This is a pattern that is forming across most of the industrialized countries at the moment.

As rates rise more and more homeowners are suffering from mortgage stress.

Buyers should calculate their repayments at 3 to 4 per cent above current interest rate levels to ensure they will be able to maintain repayments when the official rate inevitably rises.

Britain’s road users have been given a reprieve from a taxation of filling the car at the petrol station.

Chancellor of the Exchequer Alistair Darling announced in his first budget, a six-month delay in implementing the two pence a litre fuel duty.

The fuel duty was scheduled to begin in April, but with crude oil prices near record highs the HM Treasury is trying to alleviate more upward pressure on pump prices.

The delay isn’t the slow death of the duty. In fact the treasury used the budget announcement yesterday to reaffirm its commitment to the proposed duty.

“The planned fuel duty increase of 2 pence per litre in April 2008 will be delayed until 1 October 2008. Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010,” the statement said.

So, how does this affect the consumer?

Fuel and energy costs are a major chunk of a personal budget and it is also the most volatile expense.

The daily price changes can have an adverse impact on a personal budget and can be the difference in how much we save each week.

Increases in fuel prices also have a negative impact on inflation, not only does it increasing the price at the pump but it also raising the cost of food, clothing and other essentials.

Rising inflation also has a negative impact on the money that people can save.

A inflation calculator shows how our day-to-day budgets are affected by inflation and how rising costs can erodes our wealth.