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Dealing with the credit crunch

The credit crunch and the financial crisis have dominated the news in recent weeks here in the UK. For those of us looking to earn a living and continue with our daily lives, all of the events can seem a bit hard to understand.

The main areas of concern for many have been the ongoing questions surrounding the survival of some of the UK's largest banks and financial institutions. We've seen the UK government making moves to help some household names, including the likes of Northern Rock and Bradford & Bingley.

When we see big names getting into trouble, it's understandable that we start to question the solidity of other major institutions.

The crisis has also seen large falls in the FTSE 100 index, wiping billions of pounds off the value of shares. While this may not seem to have the direct sort of impact that uncertainty surrounding our banks has had, it's clear that there are implications here for all of us.

Most notably, many people are likely to have seen an impact on their pensions as a result of the large stock market falls.

At points during the last few weeks, it's seemed like we've had an endless flow of bad news. Uncertainty surrounding the banks has gone hand in hand with substantial falls in the housing market. As ever, surveys seem to be showing differing amounts when it comes to measuring the impact.

What does seem clear is that we have witnessed nationwide house price falls averaging somewhere in the region of 10-20%. It's worth noting that there will have been regional variations during this period. Problems have been added to by the fact that banks are seen to have been lending too loosely and have recently become very unwilling to lend, whether it be to other financial institutions, to people looking for mortgages, or to businesses.

It was already expected that the UK would enter a recession but there must now be an increased likelihood that such a recession may be deeper than first thought.

How are we all to deal with this situation?

While we'll all need to look at our own finances, the message must be not to panic. The situation with the banking crisis and the stock market movements undoubtedly indicates the importance of spreading the risk where possible.

Some people will have been looking to spread their investments and thinking about how much money they hold on deposit with differing banks.

It makes sense to review your own situation.

Financial experts are not certain on how things will pan out, but hopefully things will begin to become more clear in the coming months.

Filed: 23 October 2008