Leslie Kent

'Just look at this place, everybody is back from holidays and it should be full. But people are too scared to leave their desks. However, at present the City is in a state of denial. They are behaving like ostriches and trying to behave as if nothing has happened,' he said.

It is a changed world in London's Square Mile this autumn. The August credit crunch has forced up the cost of money around the world and brought volatility back to stock markets.

'Now we are in a position where asset markets are still very highly valued and have yet to adjust to the new circumstances,' says Kent. 'It is going to get worse before it gets better'.

House price volatility

And that means he thinks share prices and UK house prices are going to fall. 'The problems of the US mortgage market have crossed the Atlantic through the mechanism of sub-prime loan backed bonds bought by European banks. This is now driving up the real cost of borrowing. Three UK building societies have raised rates.

'This tightening of credit is going to affect UK housing, certainly, and equities. There is some similarity with the Secondary Banking Crisis of 1974 which I saw as a young economics graduate in the City. But the central banks are better able to handle things these days, so I don't think this is 1974 or 1929.

'That said the US housing market is a hugely important sector of the world economy, and about 10 per cent of the US economy depends on housing, and we have not seen the end of this problem. It is also not the remit of the central banks to look after a single sector of the economy.

Kent is a shareholder and director of JM Finn Capital Markets and a highly respected construction industry analyst in the UK. On UK housing he says the 'best we can hope for is sub-inflation price performance', but after 14 years of rising prices he agrees that this might be optimistic.

Cash is king

'In London City bonuses will be out of the window and that will put pressure on London house prices. We will also see lay-offs all round.' What then is his advice to Arabian investors, put money into gold or oil for example?

'No, experience tells me that cash is king in the present type of market conditions. Indeed, it is more than that, cash is the emperor. At least we do not have the high inflation rates of the 1970s to deal with but that is the only real difference, and you can argue about whether the official figures really reflect the true level of inflation.'

See also:
How will the global credit crunch impact on the GCC?
Abu Dhabi property and the global credit crunch