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Economic pain cuts across lines in London

LONDON — Despite the big letters S-A-L-E plastered on the window, Whistles, a Notting Hill boutique, is empty except for manager Miriam Isherwood and two assistants.

"It's very strange not to have people in here," Isherwood says, dismayed by the sight of so many unmauled racks of designer clothing. "It's not raining, it's not snowing, but there are no customers."

Isherwood's own circumstances help explain why.

Her roommate works for a company that went bankrupt this month. Their rent is going up because energy prices have soared. And though Isherwood once shopped so much she was featured on the BBC's Spendahol­ics TV series, she has cut back to the point that her biggest recent purchase was a tube of mascara costing a pound, about $2.

"I can't be blowing 100 pounds on bars every single weekend like I used to," she says. "These are turbulent times."

At 5.2 percent, inflation in the United Kingdom is the highest since the early '90s, gnawing away at paychecks and pensions. Foreclosures jumped 21 percent last year. Unemployment is growing at its fastest clip in 17 years, with 2-million people expected to be out of work by Christmas.

And in a grim echo of what's happening across the Atlantic, the U.K. housing market has crashed, taking with it some of the country's leading banks. Last week, Prime Minister Gordon Brown bailed out the banking industry to the tune of $74-billion.

At the root of Britain's crisis were years of loose lending standards that left banks with too little capital and millions of Britons with too much debt.

"There's absolutely no way lending levels are going to return to what they were, and that means housing prices are going to fall a lot further and credit is very crimped," says Merryn Somerset Webb, editor at MoneyWeek magazine.

"So like the U.S., we have a very nasty recession ahead of us and there's no way out."

Upscale to down sales

Perhaps no area better epitomizes "Cool Britannia's" heyday than Notting Hill, the charmingly quirky setting of the hit 1999 movie in which a famous actor (played by Julia Roberts) falls for a bookseller (Hugh Grant).

In the 1980s, as housing in central London went through the roof, middle-class families snapped up Notting Hill's large but slightly rundown homes. The influx led to trendy restaurants, shops and — inevitably — a housing boom that saw prices approach those in London's wealthiest areas.

"When London's market goes well, it generally goes well universally," says Peter Rickenberg, managing director of the real estate firm Bective Leslie Marsh. "When the market starts to come down, it starts to fragment in sections, and some are worse than others."

Today, with London house sales plunging to their lowest level in 30 years, first-time home buyers have been almost shut out of the market as lenders demand down payments averaging 16 percent. Just a few years ago, Northern Rock — which the government seized in February — was making loans for up to 125 percent of purchase price.

But for those with some extra cash, now is the time "to snap up a London property bargain," as the Evening Standard put it in a front-page story featuring a Notting Hill townhouse slashed to 499,000 from 635,000 pounds.

That's still almost $900,000, a bargain only by London standards.

'Worse to come'

As Britain's economy began to cool, Seamus Connolly was among the first to notice. He lost his bookkeeper's job last Christmas when his employer, a Notting Hill information technology company, went bankrupt.

Now Connolly, 44, is so broke he can't even afford public transportation; he walks to the library to read the papers online. He's filled out 300 job applications, only to find "either the pay is very poor or they're trying to combine more than one position."

For those much higher on the economic ladder, the potential life-altering crunch is still a few months away. Top executives with Morgan Stanley, Citigroup and other companies that make London a major financial center are still living off large bonuses from last year. This holiday season could find them with no bonuses and shares vastly reduced in value because of the plunging stock market.

That could be devastating to high-end businesses in Notting Hill, home to many in the financial industry.

"Now they still have a good lifestyle, but from next February worse is going to come," predicts Elisa Callea, manager of a children's boutique owned by Princess Marie Chantal of Greece.

Still, most shops have resisted the desperate price-cutting seen on Oxford Street, where retailers like the House of Fraser — now owned by one of Iceland's troubled companies — offer 70 percent markdowns.

Of course, London has its share of A-list celebs, billionaire Russian oligarchs and others for whom recession is a mere word. That's why Beach Blanket Babylon, one of Notting Hill's top restaurants, is enjoying a banner year.

On Tuesday, BBB hosted a birthday party for the daughter of British rock star Sting. Supermodels Naomi Campbell and Elle McPherson are regulars. But co-owner Graham Rebak has noticed some changes.

"Whereas last year more were buying bottles of Cristal at 400 pounds," he says of the luxury champagne, "this year it's Krug or Dom Perignon at 200 pounds. Or maybe it's cocktails and canapés."

End of the road

One of Notting Hill's main thoroughfares is Ladbroke Grove Road, named after the area's founding family. As it runs north, elegant townhouses give way to the drab apartments of Kensal Green, a relatively poor, ethnically mixed area near London's oldest private cemetery. The road ends at a store that sells tombstones — "We always have customers," manager John Doe says — and a little coffee shop where Abdellah Boula makes espresso.

Even here, business has been so slow that Boula plans to move his wife and two children back to Morocco, part of a predicted exodus from Britain that could also see thousand of bankers and other professionals leaving for jobs in the Mideast and Asia.

For 23 years, Phil Green drove a lot of those people around London in one of the city's iconic black taxis. Now 70 and retired, he lives under Ladbroke Grove Road, in a red houseboat moored on a quiet canal. The mooring fees have more than doubled in recent years; his local council taxes have risen, too.

"It's a tremendous struggle," says Green, who gets by on a government pension and his fast-shrinking savings. "I've worked since I was 15 and there's no way I can afford some of the leisure things I hoped I could in my retirement."

Still, Green savors life in his tight-knit community of boaters. When he wakes in the morning, he doesn't see sooty buildings, just ducks and swans gliding past.

He knows there are some things even a government bailout can't buy.

Times researcher Will Gorham contributed to this report. Susan Taylor Martin can be contacted at

Economic pain cuts across lines in London 10/17/08 [Last modified: Monday, October 20, 2008 5:49pm]
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