Business magnate George Soros said the “acute phase” of the global credit crisis is over, and the fallout will lead to recessions in the United Kingdom and the United States.“Financial institutions have been severely damaged and we are currently in a situation that will probably, I think almost inevitably, result in a recession certainly in the United States and most likely in England also,” he said in an interview with BBC Radio yesterday.
Policymakers in the US and the UK have cut interest rates to protect their economies from falling house prices, and banking losses from the subprime mortgage collapse that now total $379 billion.
The Bank of England said last month that the credit crisis may abate, and Governor Mervyn King says the economy may face “an odd quarter or two” of contraction.
“We've had a pretty serious crunch, but the acute phase is behind us,” Soros said.
“Now we have to feel the effects. In the case of the UK, you've had a housing bubble that in terms of price increases has been greater than in the US.”
UK house prices had their first annual decline since 1996 in April after tripling in the past decade, reports by HBOS Plc and Nationwide Building Society have showed.
Home prices in 20 US metropolitan areas fell in February by the most on record. The S&P/Case-Shiller home-price index dropped 12.7% from a year earlier, the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.
Soaring interbank borrowing costs led to the collapse of Bear Stearns & Cos. earlier this year and sparked a run on Newcastle, England-based mortgage lender Northern Rock Plc in September.
European Central Bank President Jean-Claude Trichet refrained from saying that the worst of the credit crisis is over, in an interview with the BBC Radio, broadcast on Monday.
He said the world faces “an ongoing, very serious market correction.”
“We're entering a period of much greater instability because we've got the threat of recession and at the same time the threat of inflation,” Soros said. (Xinhua)