New Rates & New Measures

The plight of Britain’s property, construction and adjacent industries was taken into account today when the Bank of England cut interest rates to a record half per cent and pumped £75 bn into the economy by utilising one of the most radical measures to date - QE – which stands for quantitative easing – otherwise known as printing money.

QE takes Britain into new and totally unknown waters. And reducing interest rates yet again to within a whisker of becoming zero rates is a final desperate shot at getting the economy moving again.

Of course the Band of England would have been mindful of how the Great Crash is affecting all corners of the economy. But a healthy property market is central to the well-being of the UK.

Though there has been a diversity of news lately from across the turbulent property sector most of it, sadly, continues to make worrying reading.

,Britain’s second biggest housebuilder Persimmon has ploughed into the red as the value of its land has plummeted.

It made a £780 million loss in 2008 compared to a profit of £582 million in 2007. The dive has been caused because it has had to write down £652 million from the value of its land stocks and work in progress. It also wrote down another £201 million in goodwill.

It’s been rumoured for a while that Persimmon was about to breach its banking covenants. But it’s managed to renegotiate its debts and has come up with new banking facilities. It will not – surprise, surprise - be paying a final dividend to shareholders.

Elsewhere, Smallbone – it makes £40,000 plus kitchens - is up for sale. You’d have to be a brain-dead so-called celeb ( aren’t most of them?) to install a star kitchen in the middle of the Great Crash.

A downturn in Smallbone’s business has meant that a recent refinancing package of £6million will not provide sufficient working capital to see it through the recession.

Meanwhile the vultures circle Britain’s economy. They’re picking off juicy opportunities. But hey ho! That’s the free market for you.

Luke Johnson who knows about pizzas and TV – he’s the boss of Channel 4 – has managed to raise £75 million for an investment fund.

Johnson is quoted in The Times newspaper saying he was excited by opportunities from the crunch. He was seeing “ two or three times as many opportunities as we would normally.”

Well, that should really give solace to the growing ocean of bankrupts. His fund has so far bought a posh bakery chain. Would a soup kitchen have been more appropriate?

Scouser Steve Morgan of builders Redrow is becoming known as the come-back-kid as the leader of a boardroom coup. Football fanatic Morgan – he owns Wolverhampton Wanderers and has tried to buy Liverpool FC – founded Redrow and owns 30 per cent of it. He’s now tipped as the next executive chairman. He was the chairman until 2000.

Redrow has taken a bashing. Its shares have fallen about 80 per cent in the last two years. It has said that the number of homes it sold in the last six months of 2008 had halved and its revenues had collapsed by 60 per cent. It made a loss of £46 million in the second half of 2008 compared with a £36 million profit during the same period in 2007. Redrow has halved its workforce and has taken a £24 million write down on its land values.

Time will tell whether today’s interest rate cut will help the property industry and if it will finally fire up the economy. The omens are unhelpful. There have been massive cuts in the past few weeks and they have not, as yet, hugely stimulated the economy. It is, however, still early days.

In terms of whether the lenders will pass on the half per cent cut to existing mortgagees – or whether the cut will be reflected in the range and cost of loans and mortgages available – is still unknown.

Savers will once again take another hit and meanwhile the rate at which businesses are going under is alarming. Something in the order of three people a day are losing their jobs in the UK.

Printing money is regarded by most economists as a last resort and it most definitely would not have been either Darling or Brown’s first choice. The implementation of QE is yet a further indication – if any is needed – of the depth and seriousness of the down turn.