Soros Sees Recessions Looming as `Acute Phase' of Crisis Passes

By Jennifer Ryan and Svenja O'Donnell

May 20 (Bloomberg) -- Billionaire investor George Soros said the ``acute phase'' of the global credit crisis is over, and the fallout will lead to recessions in the U.K. and the U.S.

``Financial institutions have been severely damaged and we are currently in a situation that will probably, I think almost inevitably, result in a recession certainly in the United States and most likely in England also,'' he said in an interview with BBC Radio 4 today.

Policy makers in the U.S. and Britain have cut interest rates to protect their economies from falling house prices, and banking losses from the subprime mortgage collapse that now total $379 billion. The Bank of England said last month that the credit crisis may abate, and Governor Mervyn King says the economy may face ``an odd quarter or two'' of contraction.

``We've had a pretty serious crunch, but the acute phase is behind us,'' Soros said. ``Now we have to feel the effects. In the case of the U.K., you've had a housing bubble that in terms of price increases has been greater than in the U.S.''

U.K. house prices had their first annual decline since 1996 in April after tripling in the past decade, reports by HBOS Plc and Nationwide Building Society have showed.

Home prices in 20 U.S. metropolitan areas fell in February by the most on record. The S&P/Case-Shiller home-price index dropped 12.7 percent from a year earlier, the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.

Bank Collapses

Soaring interbank borrowing costs led to the collapse of Bear Stearns & Cos. earlier this year and sparked a run on Newcastle, England-based mortgage lender Northern Rock Plc in September.

European Central Bank President Jean-Claude Trichet refrained from saying that the worst of the credit crisis is over, in an interview with the BBC Radio 4, broadcast yesterday. He said the world faces ``an ongoing, very serious market correction.''

``We're entering a period of much greater instability because we've got the threat of recession and at the same time the threat of inflation,'' Soros said.

The Bank of England signaled last week that it has little scope to lower borrowing costs further to counter slowing economic growth because inflation will exceed the government's 3 percent upper limit for ``several quarters.''

The U.K. central bank has cut the benchmark rate three times since December to the current 5 percent to ward off the first recession since 1991. The Federal Reserve has reduced its benchmark rate seven times since September to 2 percent.

Soros told the BBC in a separate interview that the U.K. central bank's actions were ``like a Greek tragedy'' because it couldn't lower its rate until too late. He urged central bankers worldwide to focus on fighting what he called asset bubbles, such as the boom in U.K. house prices, rather than bailing out the financial industry whenever it got into trouble.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O'Donnell in London at sodonnell@bloomberg.net.