Bank of England suggests tighter times ahead

In news that may affect mortgage borrowers and loans customers, the governor of the Bank of England has predicted that tough times could lie around the corner.

Mervyn King gave a speech to the House of Commons' Treasury Select Committee this week in which he explained that the British economy has begun to slow down.

Tightening of credit conditions may have already been felt by some borrowers, while lenders have been withdrawing mortgage products from the market in a bid to consolidate their business. While the wider-ranging effects are yet to be witnessed, Mr King expects the housing and property markets to be the first to show strain.

"With borrowing more expensive, and less easily available, the personal saving rate is likely to rise, leading to slower growth of consumer spending," he said.

Rising food and energy prices and predictions of slower earnings growth are also set to make for an "uncomfortable" short-term situation.

Perhaps in response to calls from organisations such as the Royal Institution of Chartered Surveyors for the Bank's monetary policy committee (MPC) to cut interest rates, Mr King described the dilemma facing the decision-making body.

"The challenge for the MPC at present is that inflation may rise in the near-term, posing a risk to inflation expectations, and could fall below target further ahead in the event of a sharp slowing in output growth," he explained.