Ironically the market turmoil generates more business for the company's trading screens used in banks and

Ironically, the market turmoil generates more business for the company's trading screens, used in banks and investment houses around the world. However, the fear is that the motor of Reuters' growth during the last decade, the long American bull market, is running out of gas and that cuts in the financial services industry will reduce the number of Reuters screens used."The company's performance has become an index of the markets," said Lorna Tilbian, an analyst with Panmure Gordon. THE CITY breathed a sigh of relief this week after Reuters, the information services group, reported better than expected growth, but the question mark that has been hanging over the company in the wake of the current financial turmoil has not disappeared. Fixed rates are likely to become more common in the UK, and for longer periods. But they will have to be renegotiable at reasonable intervals if they are not themselves to carry the risk that a rate of, say, 5 per cent comes to look high in real terms if inflation falls to zero.The UK has a relatively high proportion of owner occupation, a high loan- to-house-value ratio, and thus a high mortgage debt compared with most EU members. It also has the lowest cost of moving between owner-occupied properties, even if the time taken to move is higher.If mortgage payments become lower and less variable, the drawbacks of the high debt-income ratio of about 75 per cent will become less because the interest-income ratio will fall sharply. The advantages to the UK economy of greater labour mobility, thanks to less volatile house prices as well as lower moving costs, will be considerable.The continental countries have the advantage of lower mortgage rates than Britain, but they need to tackle the disadvantage of higher moving costs.Christopher Johnson is former chief economic adviser to Lloyds Bank, and now UK adviser to the Association for the Monetary Union of Europe.. The European Central Bank could not run interest rates up and down to deal with excess demand problems specific to the UK.

It will have to fix interest rates to suit the EMU area as a whole, and changes would thus be smaller and less frequent than they have been in the UK in the last quarter century.It is often assumed that British euro mortgage rates would move from variable to fixed inside EMU. The shift toward fixed rates in the UK so far does not have the significance many people claim. Fixed rates are often only for one to three years, after which they switch to variable. They are in effect an incentive to lure borrowers into a contract in which they bear the brunt of the risk for most of the period.The continental countries show a mixed pattern of fixed and variable- rate mortgages.If the ECB varies euro rates less than national central banks have done then borrowers will risk less by entering into variable-rate mortgages.

It would be like reducing a 4p-in-the-pound income tax cut to 3p.There might be a once-for-all surge in house prices, but after that they would slow down, because houses would no longer be seen as an inflation hedge. If the timing is right, a big cut in mortgage rates could be just what is needed to lift the economy out of the slowdown.The wider economic effects of lower euro interest rates and lower mortgage rates on the UK economy would be entirely beneficial. Average rates for depositors might fall by only 1 per cent, while rates for borrowers fell by 2 per cent. So savers might lose only pounds 5bn, while borrowers still gained pounds 10bn. This would be the equivalent of a net income tax cut of 2.5 pence in the pound, or a pay rise of about 1 per cent, for all households taken together.If British inflation rates remain low, in or out of EMU, they will be similar to those in the euro countries, measured by the EU Harmonised Index of Consumer Prices, which sensibly excludes mortgage interest. So lower nominal interest rates would mean lower real interest rates. This would again benefit borrowers, but partly at the expense of savers.However, if inflation remains low, house prices will not rise as rapidly as in the past, and the real burden of repaying a mortgage will increase over time, as inflation will not reduce it as much as in the past.The advantage to mortgage borrowers is that their debt servicing payments will be less in real terms at the outset, and more in later life, when they have a better chance of higher incomes and lower family costs.Lower mortgage rates will increase the demand for houses, and to some extent consumer demand in general.