Wednesday, Jul 22, 2009
Latest on the UK from the NIESR think tank
National Institute of Economic and Social Research: The UK economy
• After contracting by 4.3 per cent this year the economy will grow by 1 per cent in 2010. • Consumer spending will fall by 3.5 per cent in 2009 and by 1.1 per cent next year. • Unemployment will peak at almost 3m or 9.3 per cent of the labour force in spring 2011. • House prices will resume their fall, declining in real terms on an annual basis until mid-2012. • After running at 12 per cent of GDP in both 2009–10 and 2010–11, public sector net borrowing will fall only
gradually to 7.5 per cent by 2013–14. ** NIESR corporate members: Abbey National plc, Bank of England, Barclays Bank plc, Ernst & Young LLP, Marks and Spencer plc, The National Grid Company plc, Nomura Research Institute Europe Ltd, Rio Tinto plc, Unilever plc, Watson Wyatt LLP **
54 Comments
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1. 51ck-6-51x said...
So far only Sky news picked up on the HP nugget:
House Prices 'Will Fall For Two More Years'
2. str 2007 said...
666
Good find, lets hope the rest of the media pick this up.
3. uncle tom said...
I really can't see what will cause a return to growth next year.
From my perspective, the contraction looks far from finished, and there is a conspicuous lack of activity that has the potential to reverse the trend.
I suspect they are going on historical precedent - past recessions have tended to be quite short lived, and then followed first by steady growth and then strong growth a couple of years later.
But I think this one is different..
4. 51ck-6-51x said...
str - It seems that it was either Google's cache or ( more likely ) my fat fingers. The Times, The Guardian and The BBC have all picked it up from The Press Association:
Google news search result
5. 51ck-6-51x said...
UT - I would not be surprised if we do actually observe growth next year, but that it will be a skewed growth - high growth in a minority of industries ( such as finance, big oil and food related industries ) outweighing stagnation and small contraction in most. I do not deny that you may be proved correct however! ( It is certainly true that recessions have been trending towards being both more often and shorter lived and that the bursting of the credit bubble is a likely catalyst to arrest that pattern. )
6. flashman said...
Sorry, posted this on the wron thread....
If the economy does pick up then interest rates will also pick up and unemployment will lag behind, so there will probably not be much for EA’s to cheer about.
However, I’m seeing increasing evidence of an economic pick up and I can sense a distant boom coming (a technology driven boom). This ‘crisis’ will probably serve to clean out the old unsustainable crap and leave the ground more fertile for a new economy. Unfortunately, many people will suffer and will not be able to rejoin the revolutionary economy because they will not have the necessary skills or education. Unemployment will therefore remain high in Britain for quite some time. I am still a property bear but I am a now an economy bull.
As an (unpopular) aside – The government forecasting record is far better than the private sector forecasting record. Up until the forecast they made in the last budget, they had consistently confounded the private sector forecasters, for 8 years straight.
7. mrmickey said...
This is a demographic issue, there are not enough young people coming through to take on the massive debts required to get the economy going again and pay for all the social programmes, and your average Afghani immigrant isn't going to be to interested in taking out a 25 year mortage either. Check mate
8. flashman said...
str 2007: You probably noticed that they are also predicting 2.9 million unemployment.
9. 51ck-6-51x said...
flash said, "The government ...had consistently confounded the private sector forecasters, for 8 years straight"
- heh; insider knowledge for the last 8 years sounds about right ;p
One further thing to note is that the UK's labour market has relatively low friction, and technological advances tend to reduce that friction, so if you are proved correct you may be so in a bigger way than you thought.
10. nomad said...
Is there any research to indicate what white collar workers are doing with their substantial redundancy money? This could be key to small business growth that initially drives a flat economy. Are there interesting new business being created?
11. flashman said...
nomad: I think we are entering into the era of big business and big projects. Thatcher championed the creation of small businesses and for quite a while they were vital to the economy (and her voter base). Now, however that sector is troubled and new jobs will be created in much more capital intensive, technical businesses. A good example of this is small retail, which is being slowly wiped out by Internet shopping. Another example is the creation of Rightmove. It is big budget and will one day gobble up the small estate agents that currently buzz round it for survival. M&A activity around the world is hotting up because you've now got to be big to survive in all sorts of industries
12. uncle tom said...
Nomad,
The evidence suggests that the primary use of redundancy money is to pay down mortgages and other debt. There is little to suggest that people are going on a spending spree, or launching ambitious new business ventures.
Hunkering down is the order of the day.
13. str 2007 said...
666
As a metter of interest, what was your Google search to bring up the article with the other media ?
flashman
They must have got that figure from you on here yesterday ;-)
14. nomad said...
@12 UT Hunkering down is all well and good, but they will also have to earn a crust.
15. nomad said...
@11 Flashman. Big projects I like. Big business/corporate ideals - yeuk!
Don't small businesses provide the responsiveness required in sluggish times. Power boat or supertanker? American experts appear to be looking to small business to revitalise their economy.
16. flashman said...
str 2007: mine was a wild guess so god help them if it's true.
On the subject of technology creating jobs: I recently read about a new technology that really caught my imagination. Genetic engineers have created crops that can grow in seawater. Just think about how easy it would be to dig a channel from the ocean to an African desert. The mind boggles. I am frantically trying to find out how I can get on board this project. Another great example is the recent news that controllable nuclear fusion has been proven in a Lab in California. The lab used British laser technology. Maybe str1 was right about his free energy.
17. flashman said...
Nomad: you are not alone in your distaste for big business, but they are the only ones with the resources to exploit new science and technology. I have not heard that about America but I do know that Mom and Pop businesses are floundering and expected to continue to do so. In a way that's the CIT story
18. mark wadsworth said...
This ties in nicely with the Yahoo finance article posted here (last post yesterday) saying there is an -0.84 correlation between job losses and house price rises, if you lag the unemployment figure by 18 months.
i.e. if unemployment peaks at 3 million (certainly more than Flashman's magic figure 2.75 million) in early 2011, we would therefore expect prices to bottom out 18 months later, i.e. late 2012 - which is what NIESR said, obviously we don't know who copied whom or whether they arrived at this conclusion independently, but that sounds good to me.
Now, how to I break the news to Her Indoors that we'll be renting for another three years ..?
19. flashman said...
mark: I've lost the battle with Mrs Flash and am house hunting. You won't last 3 years - they have ways of making you buy
I first came up with my magic numbers, more than a month ago in a blog elsewhere, so they clearly copied me! Seriously though, I called them 'magic' numbers because they were not meant to be taken seriously and anyone with a spreadsheet could come up with similar numbers. I was a bit concerned yesterday that someone might put too much store in it.
20. str 2007 said...
Flashman
Here's a link to a company that is trialling a subsurface irrigation system that allows the use of salted water - negating the need for the genetic modification of plants.
Perhaps a good hedge incase the genetic modification doesn't work with all types of crops. (Or for those who prefer their popcorn sweet not salty) LOL.
MW
I thought the unemployment lagged the economic pick up by about 18 months - are you saying then that house price rises lag economic pick up by 36 months ?
Just 2 things I'd question with this.
1) The general public haven't had the economic house price shock they had in the early 90's (ie they've been cushioned by lower interest rates).
2) There are far more BTLers now who in the main are white collar workers, company owners and self employed. These people will IMO become bullish on house prices the moment they see an economic pick up. Just add credit !
I still feel further falls are very likely, but I'm not in the camp of this economic recovery happening so soon as alot of these 'experts' are predicting.
21. str 2007 said...
Flashman
Sorry, your link
http://www.dti-r.co.uk/
22. mark wadsworth said...
F, I have slightly the upper hand with Mrs W because she really likes the house we're renting, and she would happily buy it, if they knocked at least a third off the price they were asking in 2008. Of course it will take them at least three years of -10% each year to get to this stage so it all ties in nicely. I can't stand the place myself, but there you go.
PS Of course 2.75 million is just a "magic" number, but there must be "a" number. Similarly, a negative correlation of 0.84 and a timelag of 18 months does not give us certainty, it's all just educated guesswork (which is your stock in trade).
23. mark wadsworth said...
STR2007, yes, that seems to be the picture - the recovery comes first, then after a while unemployment goes down, then after that, house prices start picking up again.
Which would (using 18 months plus 18 months) give us up to three years prior warning.
24. flashman said...
str: Thanks for the link. They are British! It looks like they are asking for investment on the contact page
25. flashman said...
str: Thanks for the link. They are British! It looks like they are asking for investment on the contact page
26. george monsoon said...
Flashman - M. Wadsworth..
Haha.. I am in EXACTLY the same situation.. Missue is under the impression that we are just renting for a year or so.. I have already tried to plead to her logic, but unfortunately, logic appears to be a privelege of gender.
I may also lose the battle, and have to buy within the next three years.. but I don't see much hope.
27. 51ck-6-51x said...
str2007, said "what was your [2nd] Google search..?'
- Just a reverse lookup.
28. 51ck-6-51x said...
str2007 - cont...
- and then selecting an appropriate result set ;p
29. str 2007 said...
flashman
They seem to have ongoing annual costs of £300k & made their first sales last year of £24k with a £15.5k gross profit on those sales. So far the compay is down £1.2M. So yes I suspect they need investment, but perhaps from a braver man than I.
Maybe you'd be more comfortable with and expect these sort of figures from a newish company like this, I guess if they were already making a good profit they wouldn't need investment.
BTW I didn't see them actually asking for investment on the contact page, I assume you were picking up on the the fact they were interested to here from anyone interested in their projects ?
30. str 2007 said...
666
Thanks
They weren't brave enough to say by how much were they !
31. 51ck-6-51x said...
Mmmmm Seaweed.
Seriously though, aren't most new technologies first started by university or R&D department spin-offs, which are generally pretty small companies? ( OK, so the R&D departments are generally big companies and university departments are generally sponsored by such, but I think that is a side issue. )
32. uncle tom said...
Now then gents, I'm told that traditional family roles are coming back into vogue, and you know how important it is to the fair sex to obey the latest fashion..
..so you go tell your little ladies not to trouble their pretty little heads with men's affairs, and be sure to have your dinner on the table when you get back from the pub.. ;)
33. flashman said...
str: yes, I took "interested to hear from anyone interested in their projects" to mean "please don't bother us unless you can give us money". A project I recently invested in (bikes) crashed and burned so it would be nice to be involved in something else that has a feel good factor.
34. flashman said...
uncle t: I'll try it tonight. Are words enough or should I also show her the back of my hand? I recently broke my elbow which effectively put me out of the house hunting game for 3 weeks. Maybe I'll break the other one to get me past the green shoots period
666: I think most new technology comes from 'monied' outfits. Even when a small outfit comes up with the kernel of an important idea, it becomes a race to get to market so they tend to sell themselves to an outfit that can speed things up and bring them to market
35. str 2007 said...
666
Good point, infact the Director of this company is also a Director of 36 others, so yes, they could be all small University start ups etc.
Quite how you have an effective interest in so many companies I'm not sure, perhaps he knows Mr. Mandleson.
Flashman
Is your interest a work based investment or are you talking on a personal level ?
36. flashman said...
str: just personal. I manage my own pension funds (US and UK), so I occasionally indulge my interests. I have been thinking of 'packing it in' for a while now, so I am always looking for something interesting.
37. str 2007 said...
flashman
Fancy a change myself, not sure that particular one will payout any time soon though.
Something with higher and faster returns is what I'm after, although I do like the 'green' angle.
I remember you mentioning the bikes a while ago, can't remember the details though, sorry it hit the rails. Was that just a lack of sales issue or did it run out of funding before it was off the ground ?
As I recall someone mentioned a photovoltaic framing material on that link that would charge a battery or something.
It put the spark in my mind of using the same material to cover an enclosed bike rack equiped with a couple of mini windmills on the roof to charge the parked bikes while they're securly parked.
38. little professor said...
bbc
39. 51ck-6-51x said...
Flash said, "a race to get to market "
- In some instances, but then is it really 'new technology' if not patentable / copyrightable ( disregarding monopoly considerations )?
LP
- heh, yeah see my post in another thread.
40. flashman said...
666: an example is the nuclear fusion thing. There are several outfits working on it and they are most certainly in a race. I have some experience in patents and copyrights. You would be amazed by how hard it is to protect certain concepts and ideas. Very often, you can't protect them at all and other times, you can only protect one aspect of an idea, which effectively doesn't protect you at all. Sometimes you cant protect things by design (he genome sequencing project is effectively open source so all sorts of projects in this field can't be protected)
41. mountain goat said...
Flashman & Str 2007 - the problem with using sea water is that the salinity of the soil will increase and increase since plants release pure water when they breath. The dti-r filtration system looks interesting, the salty water left behind in the pipes can be released back into the sea.
PS I did research on genetically modified crops 10 years ago. It was a medicinal plant and we were trying to modify the balance of alkaloid drugs it produced. The Frankenstein Foods tabloid headlines killed off the funding for that branch of science I'm afraid, so I packed it in and went in for Bioinformatics instead. Lets hope The Sun doesn't wage a campaign on that this summer...
42. flashman said...
str: we couldn't hit the price points. Retail is very firm on the price points you are expected to achieve
43. str 2007 said...
flashman
(Retail is very firm on the price points you are expected to achieve)
Went bed shopping the other day and called into Dreams, they were after £1k for a foam matress. Dense foam so they call it 'Memory Foam'.
The most expensive mattress I can find anywhere else is about £600 with pocket springs etc.
Dreams most expensive was about £2.8k.
Sorry to bore you all about beds which is totally unrelated to house prices, I just couldn't believe someone had come up with a way of charging a thousand quid for a block of foam. Fair play to the owner of Dreams - bet he's got a big house.
Anyway flashman you were saying about firm price points ............................. !
44. flashman said...
mg: thanks for the info
45. str 2007 said...
MG
Thanks for that info re: the Sea Water, what it is to always have an expert on hand.
Flashman
Good job I found that link, looks like the 'Hedge' might be required sooner rather than later.
MG
As a second thought, were they thinking of using the sea water in a hydroponics system and hence not having a soil contamination issue.
46. growler said...
I also have to laugh, but my wife in on board. We recently negotiated a bigger house for a lot less rent in the South Bucks area - not known for it's inexpensive property.
We have about 3 years worth of house price info logged and can see at least a 15% drop in asking prices. We also reconcile land registry agreed sales so that we KNOW that some properties have agreed at approaching 20% off.
Given the upcoming troubles as public spending will cut and banks still need to save money - any recovery in house prices will be very slow.
We will have a real look at the market in November and see how soft some of the prices are. By this time we will also see how the markets are for the supply of cash with which to buy a house. I don't see any sudden boom - unless it's one which involves the floor falling away under your feet.
I think rentals will fall as well. Add in saving rates of say 4-5% for the next 12 months, and the true cost means you would be much better off unless house prices recover by the end of the year to make the "fall from peak" figure in the HPS table about 10%. There is no way on earth this will be the case. I predict that this will be over 25% this Christmas, and more like 35% at the end of 2010.
From the last bash with unemployment, it seems entirely likely that house prices lag behind unemployment. People lose jobs, they make ends meet, the can't get a job, they spend less, then when they cannot live any more, they sell and rent. As unemployment gets to its peak, despair will be at the highest point. That's the time to drop in a "nice" offer.
47. mountain goat said...
Str 2007 does your question relate to the dti-r system? From what I can tell after a quick read is that the pure water is released slowly into the soil from the tube by osmosis helped by a little pressure from a raised tank. The technology breakthrough is the membrane that allows this. The pores are too small for salt and other contaminants to get out and being a membrane doesn't get blocked. I presume the dirty water left in the tube needs to be flushed out every now and then. Trick must be to stop the pipes getting furred up.
48. str 2007 said...
MG
No I was alking about the genetically modified plants that can live with being irrigated with salty water.
You said it would cause a problem with the soil, I was suggesting that maybe they weren't going to grow the genetically modifed plants in soil but in a hydroponics (water & added nutrients only) system.
Or maybe growing the plants in the desert sand where a build up of salts wouldn't have the same effect as it would in soil.
49. str 2007 said...
Growler
Thanks for getting us back on track.
I've now moved from Marlow, Buckinghamshire to South of Winchester, Hampshire. Since we moved the housing market has been going crazy down here.
Speaking to my accountant in High Wycombe the other day she implied things were just starting to pick up inthat area rather than 'going crazy'.
I think the buying frenzy I've witnessed will be short lived and falls will resume when someone forces the Gov/BoE to stop printing money.
As you say there's too much bad news for it all to be over already.
50. mountain goat said...
Str 2007 - Yes I didn't think of hydroponics. Genetic engineering could produce a salt tolerant crop fairly easily that you could grow hydroponically because the salt wouldn't build up. What I was thinking of was simply irrigating with salt water which would turn a desert into salt crystal fairly quickly.
51. str 2007 said...
All this talk of plants I'm expecting gardiniadotnet to pop up any minute.
52. growler said...
STR: I know that area very well indeed (grew up there). I know too many agents down there from school days.... You've got Southampton money bobbling about and a lot of amateur property professionals. The biggest issue is what happens to the large employer at Eastleigh airport... And then the other one in Hursley....
I'm east of Wycombe and regardless of what I read, the facts show prices static at best.
Roll on winter ;-)
53. str 2007 said...
Growler
We do have alot in common, I grew up here aswell.
54. Poacher said...
@10 nomad, not sure about redundancy payouts, but feeling that the pressure was off in terms of house prices racing away meant that I felt able to give up a salary and spend some savings on setting up a business late last year instead of ploughing it into bricks and mortar. Seem to remember a Tory spokesman a couple of years ago as describing house prices as the single most effective contraceptive in the UK because people were continuously putting off having families because they couldn't afford homes that would accommodate a family, or because people needed two uninterrupted incomes to own a home able to accommodate a family. Likewise, I think house prices may well have been the single biggest barrier to entrepreneurship (apart from financial 'innovation', which clearly thrived on it!). I am only able to finance a startup because I stepped off the housing ladder. Other people who I know that would dearly love to try aren't able to because their homes are a financial millstone. Another interesting factor is that a lot of money that was previously going into BTL is now looking for a home - I get approached by people who parked their money in property for the last 10-15 years now trying to persuade me to take investment.
Current economic circumstances must be giving thousands of startup-ers like me an opportunity to take a chance they wouldn't otherwise have been able to take and also improving their chances of getting second round finance from disullusioned property investors. Redundancy money must be part of the equation - where it doesn't have to be earmarked for mortgage payments it must sometimes be going into startups.
That said, I know that Thai and Indonesian beaches off the tourist trail are currently choked with itinerent city refugees living the high life off their payouts, which they believe will stretch for a year or two over there, so it's not all being used productively!