This is definitely the morning after the night before. Yes I am at this point discussing the disaster that was had by the UK polling industry! Did they recruit from the Bank of England forecasting department or perhaps the Office for Budget Responsibility? For foreign readers the pollsters displayed rating agency style accuracy by forecasting a neck and neck election which somehow morphed into what looks like a Conservative majority. A very wide miss which will damage their reputation for quite some time. Although to be fair one at least has demonstrated some good grace. From Stephan Shakespeare of YouGuv.
A terrible night for us pollsters. I apologise for a poor performance. We need to find out why.
As to the result well it has been summarised with references to Maggie Simpson with her yellow face and blue body. However we also received today updates also on the two major economic issues facing the UK.
One view of policies likely in this area has been provided by the stock market. Can anybody spot a theme in this from @econhedge ?
Foxtons gains 7.5%, Savills gains 11%. Countrywide adds 4%. Online property portals Zoopla and Rightmove add 4.7% and 5.1% respectively
Indeed the Financial Times also gets on the case.
Houses worth over £2m could see price rises of as much as 20 per cent in the next 12 months, Mr Mead predicted, and could double in the next five years.
There will be a renewed flood of cash into the capital’s housing market from foreign buyers, he said.
Giles Hannah of Christie’s International Real Estate said that buyers from Canada, the USA, the Middle East and Asia would buy in London, as they will now “view the market as a safe haven to invest in”.
Of course that is all speculation and in my opinion the last thing that the London property bubble needs is more inflation! In terms of actual data the Halifax has been on the case this morning.
House prices in the three months to April were 2.2% higher than in the preceding three months……… annual house price growth increased slightly, from 8.1% in March to 8.5%.
Exactly how does this work with an official inflation target of 2% per annum? Of course it does not which is why the UK establishment resists any change to the fact that the UK CPI consumer inflation measure excludes owner occupied housing costs. In a way the Halifax rams this home.
This combination has kept house price inflation steady in recent months with prices increasing by 2.2-2.6% on a quarterly basis and at an annual rate of 8-9%.
it even points out that house prices are moving ever further away from wages.
House prices are continuing to increase more quickly than average earnings despite the return to real earnings growth over the past few months.
With the annual rate of earnings growth being 1.3% in February I think we can say that house prices are not being driven by wage growth? We await what house price friendly moves the new government will add to its existing portfolio but is there much else left other than trying to push mortgage rates even lower? This of course returns us to my view on the likely next move in UK Base Rates being down.
My view on Base Rates will be reinforced in the UK Pound continues the strength it has shown overnight as it has risen above US $1.54,185 Yen and 1.37 versus the Euro. At such levels it is heading towards being the equivalent of in monetary policy tightening of Base Rates being 1% higher than a year ago. The Bank of England will be discussing that as I type this although I do not expect a change on Monday. As to the currency rise well maybe it is at least partly due to the property market. From Henry Prior.
2x emails from clients by 09.30 saying “go”. One spending £5m, one £10-£15m
Balance of Payments
A rising exchange rate brings us to another achilles heel of the UK economy which is our trade position which is in the news this morning. First let me remind you of the underlying situation which if the official statistics are any guide is dire.
However looking over a broader time period shows a general deterioration in the current account; the deficit over the 2014 calendar year as a whole was £97.9 billion (5.5% of GDP), which was the largest figure since comparable records began.
However there was some hope of an improvement at the end of last year so now we have the full data for the first quarter of 2015 let us take a look.
In quarter 1 January to March 2015, the UK’s deficit on trade in goods and services was estimated to have been £7.5 billion; widening by £1.5 billion from the previous quarter.
In fact both our goods and services position deteriorated in the first quarter of this year making the hopes of an improvement fade. So we find ourselves in a continuing deficit situation here which of course does not go well at all with the rally in the UK Pound overnight. It is the sort of situation which led the band Ace to pose this question.
How long has this been going on?
How long has this been going on?
In terms of a balance of payments deficit it feels like forever and has been (lost) decades. I have written in the past (2nd of April) that I feel that our services performance has probably been under-reported but even so we are on a road to nowhere with this problem. It is an area where we need to improve our data and statistics and perhaps the money below would have been much better spent at home.
The International Monetary Fund (IMF) and the United Kingdom’s Department for International Development (DFID) have launched a new project to improve macroeconomic statistics in 44 countries in Africa and the Middle East. DFID will provide £6.2 million (about US$9.3 million) over the next five years to support the project.
Some of you may already be thinking that UK pollsters could have done with the money too!
Oh and as I have pointed out before the UK is a remarkably good European for which it rarely gets the credit.
By area, the UK’s deficit with the EU widened by £1.6 billion to a record £21.5 billion, while the UK’s deficit with non-EU countries narrowed by £0.8 billion.
The idea of them cutting us off from trade is beyond laughable if you look at those numbers. Also the good news above did not require any union indeed it was with a country which forcibly rejected it some time ago.
Outside the EU, exports to the USA reached a record high £11.5 billion.
In a way for the UK economy one could summarise matters with an album title from Tom Petty and the Heartbreakers.
Damn the torpedoes (full speed ahead)
Or it would be full speed ahead if the economic growth figures had not showed a slowing! Perhaps some of that will be revised away as I discussed on Wednesday but we march onwards with a bubblicious housing market and continuing balance of payments problems which have tripped the UK economy up many times in the past. What could go wrong?
As to the election itself well here is a song from my album of the day for the losers as the winners do not need one.
Baby, even the losers get lucky sometimes
Even the losers keep a little bit of pride
They get lucky sometimes
Meanwhile yesterday’s European bond market crash had disappeared like the evidence of a shower on a hot summers day. As the equity flash crash has been blamed on a semi in Hounslow I do hope that this particular flash crash does not get blamed on a David Brent in Slough!