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Budget Report Discussion

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Wondered about a new thread to discuss the budget report, anyone interested?

But not a thread to discuss colour of the chancellor's tie, performance of various politicians, or emigration to New Zealand.

Budget report is



I found this in the section on the economy.

Box B7: Housing and private consumption in the UK

The relationship between house prices and consumer spending has been the subject of

extensive debate and research. In the past, there has been a strong, positive co-movement

between the two: increases in house prices tended to be associated with increases in

consumption. A major challenge in economics is to distinguish causality from correlation.

Do rising house prices cause strong consumption growth, or are both caused by common

‘third factors’, such as falling real interest rates or rising income expectations linked to

labour market developments? And if there is a causal relationship, what is the mechanism

that links the two?

On the question of causality, at the macroeconomic level, Case, Quigley and Schillera find

evidence of a housing wealth effect without considering common factors, but Aron and

Muellbauerb conclude that “a substantial part of the earlier correlation [between house

prices and consumption] was due to variation in common causal factors”. Using similar

microeconomic data, Attanasio et alc find that house prices play no independent role in

explaining consumption, but Campbell and Coccod reach the opposite conclusion, that they

play a large role.

On the question of the mechanism, there are two main channels that have been suggested

as linking house prices to consumption. The most obvious is a pure wealth effect; as with

any other asset, rising house prices may make households feel wealthier and therefore

consume more. However, houses are different to other assets, such as shares, as they also

provide a service that is consumed: as house prices rise, the extra wealth gained from the

increase in the price of the asset is offset, at the aggregate level, by the increase in the cost

of that service, accommodation. Rising house prices distribute wealth away from those who

have limited housing assets and still have a lot of housing to consume over their lifetime

(the young) to those who own a large amount of housing assets but have less housing

services to consume (the old).

An alternative channel is through the collateral effect. As housing equity can be used as

collateral to borrow against, a rise in house prices may allow previously credit-constrained

households to borrow more and increase consumption. This channel has recently been

explored in two working papers by Bank of England staff,e,f both of which find some role for

collateral in explaining the co-movement of house prices and consumption. However, with

the level of housing equity currently very high, other things equal, a slowdown in house

price growth would be unlikely to have a large impact on consumption through significantly

increasing credit constraints.

If the historic co-movement between house prices and consumption primarily reflects

common factors and collateral effects, then a slowdown in growth of house prices need

not necessarily imply a slowdown in consumer spending. Moreover, strong recent labour

market performance means that conditions are in place for house prices to slow without

a significant negative impact on consumption. Nevertheless, there remains the risk that,

combined with the broader tightening of credit conditions caused by the disruption in

global financial markets, consumer spending could slow more than forecast.

I find the last sentence very telling. They've already cut the growth forecast 0.25% which takes it to the CPI target level, and lower than the forecasted bulging CPI level. Surely that is negative in real terms? Now they seem to be saying it may fall lower still.

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Budget report is

This makes me furious:

Budget 2007 announced the launch of a shared equity competition, which invited bids

for a shared equity product to be delivered in partnership with Government from April 2008.

The aim is to encourage innovation and develop products that offer improved affordability

and value for money. Two winning schemes – Co-operative Bank/Places for People group

and Chase, a housing association consortium – have been selected from the many proposals

put forward, and will be made available to eligible households from 1 April 2008. The new

products offer equity loans of up to 50 per cent of the property purchase price, reducing the

conventional mortgage required. These loans are larger than those previously available and

will help bring home ownership within the reach of many more households.

This is just blatant use of my taxes to prop up prices.

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In his statement to the House of Commons on 9 June 2003, the former Chancellor committed

the Government to an annual review of progress. The Government does not propose a euro

assessment to be initiated at the time of this Budget. The Treasury will again review the

situation at Budget time next year, as required by the Chancellor’s June 2003 statement.

Because if they tried to join the Euro the rest of europe would refuse us on the grounds of our being a banana republic.

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B.98 While the US current account deficit has started to decline, this has not yet been

accompanied by a reduction of the large surpluses of some Asian countries. There remains

a risk of disorderly unwinding of global imbalances, with the economic costs such a process

would entail. To reduce this risk it is important that major world economies allow a continued

rebalancing of demand and flexibility in their exchange rates.

It is all here, the second sentence says.

Panic, panic, the Yen Carry trade will unwind and wipe out sterling!

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C.91 As set out in Chapter 2, the Government will replace the Bank of England loan to

Northern Rock with direct Treasury funding. The overall effect of this refinancing will be

broadly neural for TME. Increased debt interest paid to the private sector by HM Treasury

will be offset by reduced net debt interest paid to the private sector by the Bank of England,

making the transaction neutral for the public sector as a whole. Interest payments paid by

Northern Rock to HM Treasury mean that the effect of the refinancing is also neutral for both

the central government and public corporations sub-sectors.

Sounds good, neutral for central government.... No it is not, they've taken over £100bn of debt since the last budget!

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Gross C.98 gilt redemptions are £17.3 billion and National Savings and Investments’

(NS&I’s) net contribution to financing is estimated to be £4.0 billion. The net financing

requirement for 2008-09 is forecast to be £78.8 billion. It also includes the impact of the partial

repayment in 2007-08 of £6 billion of the Ways and Means Advance at the Bank of England.

The Government’s decision to repay up to £7 billion of the remaining balance of its Ways and

Means Advance at the Bank of England is not reflected in the net financing requirement in

2008-09 but is included as a planned change in the short-term debt level.

Anyone with any idea what this means? Is this that they've paid off £7bn of debt, or is this further debt covering up?

Anyway, enough posts from me, someone else can take over looking through the report!


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  • 295 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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