As political woes bring Greece to its knees the country’s exit from the European single currency is looking increasingly likely.
Ward said if that happens the knock-on effect on LIBOR and consequently mortgage rates would be irrelevant because the whole European economy would suffer so severely.
He said: “Frankly if Greece does exit then mortgage rates and LIBOR rates won’t matter anymore. We’ll all be sucking porridge. How will it affect us all? It’ll be severe.”
Global banks would be severely destabilised and are likely to hoard capital. At best this would push LIBOR and swap rates up and is likely to force lenders to hike mortgage rates.
“Greece is now in an unsustainable position,” Ward explained. “Their economy is linked in to Germany and the European Central Bank’s monetary policy which does not leave them with a lot of room to work with to grow their economy.
“They could implement austerity measures but even then, how are they going to produce goods and services to drive their economy? They can’t. There isn’t even the political will in Greece for them to do this.
“Greece and the eurozone entered into a game of brinkmanship where it was felt that the rest of the eurozone would keep Greece in at all cost. That now isn’t the case and it’s turned to the point where it’s very likely that the eurozone will let Greece exit.”
Earlier today Mervyn King, governor of the Bank of England, revealed that the consumer prices index measure of inflation was unlikely to fall to its 2% target till mid-2013 and would be around 2.5% at the end of this year.
He also slashed the Bank’s UK growth forecasts partly because of the worsening eurozone crisis which he called the greatest threat to UK recovery.
King said: “Our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.
“The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2pc strikes me as wholly unrealistic.”
King added it was impossible to quantify the potential impact on Britain of the worst possible outcome in the eurozone.
He said: “We don’t know when the storm clouds will move away. But there are good reasons to believe that growth will recover and inflation will fall back. Along the way we will no doubt be buffeted by winds from unexpected quarters.”
