UK Economy

Currencies hit the Headlines

Two currency movements are in the news today. Firstly the pound has fallen to an eleven year low against the Euro with one Euro now worth eighty pence. The second currency hitting the headlines is the Chinese renminbi which has appreciated beyond Rmb7 to the US dollar for the first time since 1994.

Policy conflict for the UK economy?

The IMF is forecasting a slowdown in global growth to 3.7% in 2008 and 2009. This is in contrast to recent growth rates of over 5%.

Chart of the Day: Nationwide Consumer Confidence Index

First published in May 2004, the Nationwide Building Society’s consumer confidence index is a recent addition to the phalanx of indices seeking to track changes in household sentiment and give us a lead indicator of where the economic cycle might be heading. 1,000 adults are interviewed each month, in a survey that is the closest we get in the UK to the Conference Board surveys published in the United States,The Index is based on responses to 5 questions included in the survey:

People’s appraisal of current economic conditions
People’s expectations regarding economic conditions six months hence
People’s appraisal of the current employment conditions
People’s expectations regarding employment conditions six months hence
People’s expectations regarding their total family income six months hence

The latest figures were released today and show the weakest confidence since the survey was launched, evidence perhaps that the gloomier economic headlines dominating the papers and TV news coverage in recent days and weeks is starting to show through. Looking a little at the detail within the survey, it seems that people’s expectations for the economy in six months time are improving slightly, but on balance those surveyed still expect house prices to rise during 2008. Perhaps the news on property prices from the last few days will change this perception in the May survey?

Economic Resilience?

Gordon Brown and his Chancellor, Alistair Darling, have been keen to stress that the economy is ready to weather any storm that hits it. Although the economy remains standing, despite recent turbulence in the financial markets, it does seem like tempting fate to claim that the economy is so resilient, and capable of withstanding any disturbances that might come along. So what supports their statements, and what are the risks to the economy? This post looks at a few of the problems on the horizon.

Chart of the Day: Falling UK House Prices

No surprises for our choice of chart of the day!

House prices have seen their biggest monthly drop since the 1990s recession, according to Halifax Bank of Scotland - the UK’s biggest mortgage lender. Let us include the usual caveat that you should never read too much into one month of data - but it seems to me that virtually of the housing market indicators including many of the forward-looking confidence surveys from households, estate agents and construction companies are pointing to a hefty downturn in house prices and activity in the market over the coming months whatever the soothing comments of the housing market economists from the leading banks and mortgage lenders. From a personal perspective, I am happy for property prices to decline for a couple of years having been out of the market for some little while. It probably won’t be a rout whatever the Daily Mail and Daily Express might suggest on their front pages. But the property boom is most definitely over for now and a dampening of the ardor for bricks and mortar as almost the sole route to greater wealth is, in my opinion, no bad thing at all.

PowerPoint Charts
House_Price_Inflation.ppt

More to life than GDP?

Happiness economics is a topic very much in vogue at the moment, and this year’s edition of Social Trends has clearly paid homage to that fact by including a measure of subjective well-being: Satisfaction with standard of living and financial prospects [Table 5.5]. The data made no attempt to debunk the Easterlin paradox: while household income has increased by over 60% and household wealth has more than doubled, satisfaction with standard of living has remained constant at around 85%.

A bubble waiting to be pricked

Roger Bootle has been a long standing critic of rampant asset price inflation. In the Business Telegraph he provides a caustic and hard-nosed look at the housing market recession.

“There are two major causative factors at work. First, houses have become extraordinarily expensive, to the point where ordinary people can barely afford a shoe box. And second, the ample supply of credit which allowed this to happen is now tightening. The second may be the proximate cause of the coming fall in prices. But don’t let anyone fool you into believing that it is the fundamental cause. That prize goes to the ludicrous over-inflation of prices. In order to get on the “ladder” you have either to own property already or mortgage yourself up to the eyeballs. This has been a bubble waiting to be pricked.”

The rest of his article which is excellent for students preparing for the housing market paper (AQA unit 3) this summer can be found here

Over at the Independent, the superb Stephen King looks at the credi crunch and market failure

From Pope Pius VII to the credit crunch, market failure lives on

Chart of the Day: Construction Sector Confidence

Last week we had lots of coverage and comment on the retreat from mortgage lending by many of the UK’s biggest home finance providers. The essence of the problem is that the lenders are just not as willing to offer loans to people as they were. Profit margins have been squeezed as the wholesale cost of money has risen, and some mortgage providers have effectively left the market for the time being. This is making life very difficult for people needing to get a first-time loan or looking to renew their mortgage deals when fixed rate agreements reach an end.

The result is a sharp fall in the number of property transactions that are falling through because of problems in finding the required level of funding.

Chart of the Day: Consumer Credit

Interest rates on unsecured credit are up to five times the base rate of interest set by the Bank of England. And consumer confidence is dipping sharply as the economy heads into a slowdown. But that doesnt seem to be stopping UK consumers from piling on the debt onto their credit cards. New figures show that personal borrowing in Britain soared by its highest amount in more than five years in the year to February 2008. The level of new consumer credit surged by nearly £2.4 billion in February with unsecured borrowing growing by £1.6 billion. An act of irrational desperation? Or an inevitable and necessary move when other supplies of credit dry up? Re-mortgaging is become more expensive and less easy to arrange forcing consumers who want to live on the never-never to find fresh sources of funds. It seems crazy to me that people are prepared to do this, why not rein in spending at this time and save some more for the tougher times ahead? Perhaps most people dont expect a recession - or dont think that it will hit them directly?

PowerPoint chart
Consumer_Credit.ppt

Revision: Supply-side of the UK Economy

This revision note recaps short run and long run aggregate supply and looks at some of the key supply-side policies together with a brief evaluation of the recent supply-side performance of the UK economy. Designed for both AS and A2 students. I have also attached a PowerPoint presentation with a selection of supply-side indicators for the UK.

Revision Note (pdf format)
Revision_Supply_Side_Policies.pdf

PowerPoint Charts
Supplyside_Performance_2008.ppt