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Is The Uk Facing Recession?

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Every month, MoneyWeek invites the best investors we know around for dinner and get them to talk about what they would put their money in right now - and what they would avoid. Earlier this year we had seven investment experts around the table talking about everything from gambling in Macau to houses in the UK - we think you'll be interested in what they had to say …

Merryn Somerset Webb: There has been a lot of talk about Greenspan’s legacy, but I think the weight of opinion at this Roundtable would probably suggest he is leaving the US in a pretty dismal state. What does this mean for the stockmarket?

Jim Mellon: That we should stay out.

James Ferguson: I’m not so sure about that. I think we all agree that the economy is not in the best of shape, but that doesn’t mean stocks will fall. New Fed chairman Ben Bernanke has got scope to cut rates, so he probably will when things start to wobble – I think the first signs of slowdown are going to come this year and we’ll see rates cut fast then. I wouldn’t go out of my way to buy US equities – there’s better value elsewhere – but if rates fall, I wouldn’t be anticipating a crash in US equities quite yet either.

MSW: Will disaster be delayed here, too?

JF: Not economic disaster, I don’t think. The economy here is a mess, but in the UK the Bank of England’s Monetary Policy Committee (MPC) would never cut rates as far as they are prepared to in the US. Imagine what would happen to our housing market if you cut rates to 1%! Now that would be a bubble.

John Walter: You only need to see what happened in the summer when rates were cut. It was a tiny cut, but within a month the buy-to-let junkies were back buying another 200 flats in Leeds off-plan.

JF: Exactly. Anyway, as Mervyn King points out, his job is to watch inflation, not economies. So given that inflation is right at the top of the 2% limit, rates aren’t likely to fall. Not with a rising oil price. They might even have to raise them. On the plus side, the authorities have done a good job in containing inflation, to the extent that they’ve kept inflation expectations low (albeit by fiddling with the data), and have thus stopped the unions demanding big rises.

JW: I’d worry about inflationary expectations now. They’ve been low for so long, but with utility bills going up 30%, petrol prices so high and council tax certainly going up too, people will notice, and come pay review time they’re going to ask for enough to cover it all.

MSW: Is anyone expecting rate cuts?

Francis Brooke: I think that probably the best thing the MPC could do is nothing. If they cut again, they would run the risk of reinflating the housing and consumer bubble.

David Stevenson: There may be one thing that would stop that happening: unemployment. Last year, companies sat on existing staffing levels, but now unemployment has been creeping up and if growth keeps coming off, I don’t doubt it will keep doing so. That’s going to deflate consumer confidence and rates could go down to compensate.

JF: It’s hard not to conclude that recession is on the way in the UK. Growth has never before been as low as it is now (1.7%) without continuing on into recession. I’m amazed more people aren’t more worried. We know, for example, that there is a close relationship between house prices and retail spending because of mortgage-equity withdrawal (MEW), and we know that MEW in the last 12 months has dropped by an amount equivalent to 3% of GDP. You can’t just walk away from a hit like that, not when consumption makes up two-thirds of GDP. We’ll be damn lucky if growth doesn’t turn negative soon.

JW: Yet mortgage stocks are still rising.

JF: It’s amazing the media still buys into the PR campaign from those with a vested interest in the housing market. They are told the worst is over and fed bogus stats to prove it and they believe it!

If you'd like to read the rest of this conversation, please click through to our website, here: http://www.moneyweek.com/file/7783/moneywe...-recession.html

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John Walter: You only need to see what happened in the summer when rates were cut. It was a tiny cut, but within a month the buy-to-let junkies were back buying another 200 flats in Leeds off-plan.
:lol:

Interesting piece.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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