30 October 2008                                       

Allliance Trust says main problem for economy now is lack of growth as threat of inflation begins to recede

  • Research Centre Head Shona Dobbie explains the roots of the sub-prime crisis and its likely consequences for the economy in new webcast
  • Extreme market turbulence and credit squeeze have brought threat of long and serious global recession
  • As threat of inflation starts to recede because of effects of crisis and falling oil price, the main problem that authorities face is a lack of growth

 

FTSE-100 investment company Alliance Trust has published a webcast to explain how the US sub-prime credit crisis developed into a global financial market crisis.  The webcast examines the roots of the crisis, which date back to the start of this decade. It explains what the sub-prime crisis is and why it has greatly affected the global financial markets and looks at what this means for the economy.

 

Head of the Alliance Trust Research Centre, Shona Dobbie, said: “We’ve received several requests for information regarding the current financial market turmoil, which is why we have produced a webcast to help people understand the background to this crisis which is affecting both corporate and consumer sectors.” 

 

“The extreme turbulence in financial markets and resulting freezing in credit has brought with it the threat of a long and serious global recession. Whether or not this downturn becomes a more severe depression depends on how quickly policy makers can correct the abnormal divergence of interbank interest rates from central bank policy rates, generate confidence in the banking system and get credit flowing again. As the threat from inflation starts to recede, easing pressure on household budgets, the main problem authorities have to contend with is a lack of growth.”

 

“In the UK, as businesses and consumers struggle to access credit, the economy will be hit.  In fact, in the second quarter of this year, UK GDP stalled for the first time in 15 years.  We are seeing a lack of investment which is usually accompanied by lower levels of employment growth because it is a signal that corporate confidence is low. This is a key threat for the consumer. Unemployment has already started to pick up in the UK, and there is a risk this could increase much further, undermining household confidence and spending.”

 

In the webcast, Dobbie explains how a combination of rising interest rates and falling house prices started to produce the sub-prime crisis.  She goes over the role played by the pooling of risk before showing the extent to which the squeeze in financial markets has limited the willingness of banks and other financial institutions to lend today.  The webcast is available to view on the News page of Alliance Trust’s website at www.alliancetrust.co.uk/news.

 

 

Contacts

Jane Holligan, Media Relations Manager          Anna Schirmer / Stuart Lerman / Anna Moulds

Alliance Trust                                                      Lansons Communications

Tel  +44 (0)1382 306064                                   Tel  +44 (0)20 7490 8828

Mobile  07793 296813                                      Email  alliancetrust@lansons.com

Email  jane.holligan@alliancetrust.co.uk      

Web www.alliancetrust.co.uk

 

 

Notes to editors

 

  1. Alliance Trust PLC is a self-managed investment company with investment trust status. A FTSE-100 company, it is the largest generalist UK investment trust by assets listed on the London Stock Exchange.

 

  1. Founded in 1888, the company is based in Dundee and has offices in Edinburgh, London and Hong Kong.

 

  1. The Research Centre is part of Alliance Trust and was formed to carry out economic and social analysis to deepen our understanding of economies, markets and socio-economic issues.

 

  1. Photographs of Shona Dobbie are available.