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Cable: Property crash 'worse than forecasts'

24/06/2008

The UK economy is set to tough times, worse than many mainstream predictions, Liberal Democrat shadow chancellor revealed.

Ahead of the first anniversary of Alistair Darling as chancellor of the exchequer, Mr Cable explained the effects of the current economic and property crises will be felt for a number of years.

"I think most people are underestimating the severity of the downturn in the housing market," he said.

"It will be a great deal worse than mainstream forecasts. I think the government is going to struggle with this combination of high inflation, low growth and potentially increased unemployment for several years."

Mr Cable added: "This is no quick end to this. The light at the end of the tunnel is a long way away, several years."

In a particular the Lib Dem spokesman, and former chief economist for Shell, expected "serious grief in the housing market", with bigger falls in house prices and a rapid rise in repossessions.

"Of course, the government cannot stop the market working, nor should it, but it could come up with a package of measures to stop large scale repossessions, by imposing an effective code of conduct on the creditors."

He also raised problems of greater bank losses and how the Bank of England is able to deal with them.

"There is a deeper question about how the Bank will handle rising bad losses in the banking system, which is not a liquidity problem, but is going to threaten some of the weaker ones with insolvency."

Mr Darling has maintained the UK is not heading to a recession.

A Treasury source said: "Alistair doesn't think there will be a recession. He thinks the British economy is better placed than most to deal with the difficulties and he thinks we have to be very careful not to talk ourselves into a recession.

"At the moment employment is still very high and unemployment is comparatively low."