UK House Prices -The next bubble waiting to burst ??
dr agon - Wed, 14 Dec 05 :
Hard times ahead for Brown
Alex Brummer, Daily Mail
13 December 2005
A WEEK has passed since Gordon Brown delivered his Pre-Budget Report and there must already be doubts about a pick-up in growth in 2006.
The Treasury forecast is built on the promise of a rise in exports, business investment and the housing market next year.
The first batch of numbers is not encouraging. A CBI industrial survey suggests that the home market has improved only marginally and that export demand is weakening.
Further evidence of sluggishness comes from the wholesale prices index. This shows the slowest rise in output price inflation since October 2004, suggesting that despite rising gas prices, industry cannot pass on increases to its customers because of slack demand.
More negative evidence comes in a release on house prices from the Office of the Deputy Prime Minister.
The ODPM index dropped 0.3% in October to 2.2%, down from 3.3% in September. The ODPM tends to lag behind the many other house price indexes but has the advantage of being more complete and based on the prices of real transactions.
What it may not have captured is any recovery in house prices in the early autumn, although forward-looking data from Rightmove suggests that asking prices were declining in early December.
There is a belief at the Treasury that it will take a change of sentiment in the housing market for there to be a recovery in consumer spending.
To be fair to Brown, there is none of the bravado in the PBR about prospects for 2006 that there was in the March Budget, when the Chancellor's forecasts were hopelessly wrong.
On the contrary, only a modest recovery to 2%-2.5% growth is seen in 2006. In addition, the PBR warns of several risk factors, including a continuation of high oil prices and a weak EU recovery.
In reality, we cannot really expect the British economy to motor again until interest rates start to fall and there is a real uptick in housing.
Yet even though inflation is starting to come back towards the Bank of England's central target of 2%, there can be no confidence that the Monetary Policy Committee is in any hurry to lower rates.
It will need to be convinced that, among other things, public sector pay settlements, which have been rising at 4.5%, are stamped on and come in under or at 2% - the norm requested by the Chancellor.
The economy is just emerging from a tricky year. There can be no confidence as yet that the green shoots of recovery are breaking through.
