It’s not that difficult to notice that we are in the midst of an economic crisis is it? This thought struck me during the weekend whilst I was on a sports forum and I noticed topics not relating to the beautiful game but to the worsening value of the pound. In amongst topics debating the visual ability of the referee there are posts relating to the cost of having to put up with such nonsense.

This is just one such example. Running a search for keywords such as ‘economy’, ‘credit crunch’ and ‘interest rate’ pulls up an astonishing amount of topic threads not related to the subject of the economy, yet find themselves containing posts referring to it.

I read with interest this morning an article on this afternoons forthcoming pre budget report in which Chancellor Alistair Darling is set to announce a £20billion fiscal stimulus. In the red corner we have Darling stating that we must act now to avoid making the same mistakes we did in the recessions of the last few decades, whereas in the blue corner it is argued that increased public borrowing will lead to higher taxes further down the line.

For me there are elements of truth in both. Whilst I would certainly support the notion of acting sooner rather than later, I would agree that making sure the credit markets are working again is every bit if not more important than any fiscal boost.

Either way, we will all have to watch how things progress in the oncoming months, most notably in January which is traditionally a ‘quiet’ month for many of us. Personally I’m not convinced that raising the tax bracket for higher earners will be as effective as hoped nor do I think that the 2.5% cut in VAT will be either, although I welcome both. The cut in VAT is supposedly to encourage spending again but in reality it will fail.

Retailers are feeling the crunch as much if not more than most, not a day goes by without hearing of another shop, pub or restaurant going to the wall. The cut in VAT gives them every opportunity to raise their prices, and just watch them do so! We live in a capitalist society and there is nothing to stop them.

Sunshine on a rainy day?

Well, the Bank of England has announced an interest rate cut, the size of which has not been seen since 1981.

The BOE has cut rates from 4.5% down to 3%, following the emergency cut last month which saw the rates fall from 5% to 4.5%, but today’s rate cut is by far the clearest sign that the UK is heading into a long recession.

The one and a half percentage cut has come as a major shock to many people, but as inflation could possibly be looking to fall below its target, the move has been seen as many as a necessity to keep the country stable during the difficult times ahead.

The Bank Of England released this statement :

” The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 1.5 percentage points to 3%.

The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom. There has been a very marked deterioration in the outlook for economic activity at home and abroad. Moreover, commodity prices have fallen sharply.

Since mid-September, the global banking system has experienced its most serious disruption for almost a century. While the measures taken on bank capital, funding and liquidity in several countries, including our own, have begun to ease the situation, the availability of credit to households and businesses is likely to remain restricted for some time. As a consequence, money and credit conditions have tightened sharply. Equity prices have fallen substantially in many countries.

In the United Kingdom, output fell sharply in the third quarter. Business surveys and reports by the Bank’s regional Agents point to continued severe contraction in the near term. Consumer spending has faltered in the face of a squeeze on household budgets and tighter credit. Residential investment has fallen sharply and the prospects for business investment have weakened. Economic conditions have also deteriorated in the UK’s main export markets.

CPI inflation rose to 5.2% in September. The substantial rise since the beginning of the year largely reflects the impact of higher energy and food prices. But commodity prices have fallen sharply since mid-summer, with oil prices down by more than a half. Inflation should consequently soon drop back sharply, as the contribution from retail energy and food prices declines, notwithstanding the fall in sterling. Pay growth has remained subdued. And measures of inflation expectations have fallen back.

Since the beginning of the year, the Committee has set Bank Rate to balance two risks to the inflation outlook. The downside risk was that a sharp slowdown in the economy, associated with weak real income growth and the tightening in the supply of credit, pulled inflation materially below the target. The upside risk was that above-target inflation persisted for a sustained period because of elevated inflation expectations. In recent weeks, the risks to inflation have shifted decisively to the downside. As a consequence, the Committee has revised down its projected outlook for inflation which, at prevailing market interest rates, contains a substantial risk of undershooting the inflation target. At its November meeting, the Committee therefore judged that a significant reduction in Bank Rate was necessary now in order to meet the 2% target for CPI inflation in the medium term, and accordingly lowered Bank Rate by 1.5 percentage points to 3.0%.

The Committee’s latest inflation and output projections will appear in the Inflation Report to be published on Wednesday 12 November.

The minutes of the meeting will be published at 9.30am on Wednesday 19 November.”

For more than three years now I have often cast a very watchful eye over the property portal industry. Whilst working within it I would always keep tabs on what the competitors were doing and now I have stepped outside the circle I am moreso keeping tabs on new developments.

I started out working for one of the smaller independent portals in the UK side of the market and we were operating out side of the top five yet trying to build market share. We always had a firm belief that through hard work we could achieve a standing close to or even above those situated in second place and below, but the top dog was always perceived as untouchable. Never say never I know, but they were a bridge too far.

So as the economic times continue to constrain the budgets of estate agents all over the country, how do they survive? Cutting costs is the obvious answer. The aforementioned portals aggressive business model of demanding considerable amounts per month is one such reduction that can be done away with virtually immediately, especially if on a rolling contract, so it came as little surprise that of the 22 agents in Hereford an astonishing 70% have chosen to withdraw their subscriptions [Source: Global Edge]. So if Hereford serves as an example, what of the rest of the nation?

Whilst I have yet to research the response of various competitors this has heightened a perspective that I have held for a few months now in that the portal market is set for a radical change. It has always been such a fragmented market, but now, in line with other industries, it will whittle down to the industrious few. I personally believe that smaller sites will unfortunately now cease to exist over the course of 2009 and that the market leader will not be the only one to face reductions in subscriptions. In fact, they’ll all face it. If the best performer faces reductions, any other portal believing there is market share to seize has, quite frankly, delusions of grandeur.

In the oncoming weeks I shall further analyse competitor reactions to this and intend to make a few phone calls to that effect. Watch this space.