Tuesday, Nov 07, 2006

Positive, but caveat-ed outlook

National Institute of Economic and social research: UK Economy Forecast

Linked to the First Rung report, here is the NIESR summary of the UK economic outlook; follow the link for the full report. Having scanned the report and read this summary, there is very little that indicates the the bottom will fall out of the housing market over the next 2 years. Such reports are the source of "House Price Crash Fatigue" which is now being experienced across the country.

Posted by talking rot @ 11:58 AM (344 views)
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4 Comments

1. bidin'matime said...

I dont think there is much 'house price crash fatigue' out there - most people think the correction happened last year and prices are now forever upwards. The problem that serious economists have is that (and I count myself amongst them - well serious about the subject), once you have a bubble, you can throw the books out of the window - it's no longer driven by economic fundamentals. The more you model the future based on the past, the more your model finds that a bubble is 'normal' - then your model has to be thrown away too. The only solution is to put your faith in the fact that economics is a cyclical beast - or as the man in the street might say - what goes around, comes around...

Tuesday, November 7, 2006 01:33PM Report Comment
 

2. sold 2 rent 1 said...

bidin,

Well said. My thoughts entirely
I am becoming more convinced that the stock, commodity, and property market are in a 33-36 year cycle. We are entering an era of high (in relative terms) inflation and commodity prices last seen in the 1970s.

Evidence of this will be seen if gold continues to rise. Some see it at $700 by the end of the year
http://www.bloomberg.com/apps/news?pid=20601012&sid=actAZCFM0tCc&refer=commodities

Tuesday, November 7, 2006 01:53PM Report Comment
 

3. paul said...

I had a rare moment of clarity this morning.

What was always assumed about the relationship between inflation and interest rates was that there was one of two options for households - save it or spend it, and that inflation was a reflection of too much of the latter, requiring an interest rate rise to reign in borrowing and encourage saving.

What is different now is that spending is underpinned by borrowing, and because a basic commodity such as housing is so expensive, any rise in interest rates will actually propel inflation even further as people attempt to offset monthly mortgage cost increases with corresponding wage rises.

So raising interest rates will almost certainly result in rising inflation. This means that high inflation and high interest rates are going to be the norm until some balance is restored by housing prices or wages.

Throw out your economics textbook! We're buggered!

Tuesday, November 7, 2006 03:46PM Report Comment
 

4. sold 2 rent 1 said...

Paul,

You are right but only until a point.

Whilst the economy is strong and jobs are secure people may be able to get decent wage increases.

Similarly rising interest rates will makes shop rents go up providing there is not overcapacity. These shopkeepers will try and pass on these costs to consumers if they can get away with it.

Over a period of time, when several rate rises begin to bite, unemployment rises and consumer demand slows. This will make it harder to pass on rent rises to consumer prices and for workers to get pay increases.

Tuesday, November 7, 2006 04:18PM Report Comment
 

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