UK recovery at risk from credit shortfall - papers

Economic recovery in Britain will be slowed down by a possible credit shortfall of £180bn next year caused by the weakness of the banking sector and the state budget deficit, the International Monetary Fund (IMF) warned today.

In its bi-annual Global Financial Stability Report, the IMF concluded that the damage done to banks by the financial crisis was not as great as it had first feared, but also singled out the British economy as being most at risk of restricted funding, The Times reports.

The report said: "In terms of regional vulnerability, the United Kingdom appears most susceptible to credit constraints under our stylized scenario, given its significant reliance on the banking channel and the projected sharp decline in domestic bank balance sheets, as well as substantial public financing needs.

During the Labour Party conference in Brighton this week, Lord Mandelson, the Business Secretary, said that the British economy has been too dependent on the financial sector and has failed to develop alternative sources of rapid growth.

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Lloyds TSB has been accused of misleading customers with a 2.99 per cent mortgage, which it admits to using to attract more customers into its branches despite strict lending criteria attached to the deal, according to a Daily Telegraph report.

In a letter to branch managers, seen by The Daily Telegraph, Lloyds TSB said it is launching a 2.99 per cent two year fixed rate mortgage for those with a 40 per cent deposit.

The deal also has a 2.5 per cent arrangement fee - one of the highest on the market - meaning customers with a typical mortgage of £150,000 pay almost £4,000 just for the mortgage to be processed.

The letters states the product "isn't suitable for everyone" and should be used as "a conversation starter with potential mortgage customers".

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The Financial Times reports that redemptions of funds to investors has slowed rapidly in the second quarter at Man Group although the UK's largest traded hedge fund manager said private investors were continuing to invest while many institutions remained on the sidelines.

Net client outflow in the three months to September 30 fell to $500m from $1.4bn in the first quarter as fewer clients, both institutional and private, asked for their funds to be returned.

However Peter Clarke, chief executive, described sales to institutional investors as "muted" while sales to private clients also slowed in the second quarter.

The shares, which have climbed by 50 per cent in the last six months, rose 7 per cent at the open to 328.4p.

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