Today gives us our first main insights into the UK economic trajectory so let us start off with a familiar issue. From the Nationwide Building Society.
UK annual house price growth ended 2017 at
2.6%, compared with 4.5% in 2016
So a slowing as we expected here although there were fewer cases of actual falls than I thought that there might be.
London saw a particularly marked slowdown, with prices
falling in annual terms for the first time in eight years, albeit by a modest 0.5%. London ended the year the weakest performing region for the first time since 2004.
So far house price falls are primarily a London thing as we wait to see if it will prove to be a leading indicator one more time or if you prefer the canary in the coal mine. If we return to the national picture we see that overall for the first time in a while house price growth and wage growth are similar albeit that the former still slightly edges the latter. A period of this ( or even better wage growth exceeding house price growth) would be good but somehow as ever the UK establishment seems to have other plans.
Certainly plenty of help seems to be needed as this from Henry Pryor infers.
Still struggling with this;- 3,858 first time buyers earning over £100k appear to have had Help2Buy..
Apparently according to @Andrew_J_Carter life on over £100k requires help although he has figured out what Abba would call the name of the game.
My household earns over £100k a year. We can’t afford a house (no money from parents for deposit), why shouldn’t we be entitled to Help to Buy, given the sole intent of the Government is to drive house prices up?
This brings us to regional differences as we get a new look at an issue we have discussed many times.
The picture that emerges is that this ‘typical buyer’ moves
up the income spectrum as you move from the north to the
south of the country. In Scotland and the North of England,
this buyer would lie in the 30th income percentile, while in
the South East they would be at the 80th percentile and
above the 90th percentile in London (the closest percentile
with available data).
So a cautionary note reminding us that the overall picture needs a fair bit of regional refinement especially in Northern Ireland where prices are still 40% below the previous peak. Here is some food for thought for you from the ratio of house prices to earnings for first time buyers. Back in the latter part of 2007 it rose to 8.1 in Northern Ireland and we know what happened next which should make property owners in London mull a ratio which is at 9.8!
As ever there is a general cautionary note that these figures cover only Nationwide customers and whilst it does a fair bit of business it is not the whole market and will for example miss purchases for cash.
For newer readers this has been on something of a tear in the UK over the past couple of years and in my opinion eyes cannot avoid turning to the “Sledgehammer QE” and “muscular monetary easing” of the Bank of England in August 2016 as a driver of this phase. If you look back at UK economic history monetary policy easing invariably slips into this area as frankly it is easier for the banks to do than even mortgage lending but especially business lending a subject I will return to in a moment. So where do we stand now? From the Bank of England this morning.
The annual growth rate of consumer credit slowed to 9.1% in November (Table J), the lowest rate since
December 2015. This fall partly reflects a particularly strong flow in November 2016 falling out of the annual
In a way it speaks for itself that 9.1% is the lowest annual rate of growth for a while. Even so it is some 7% higher than the economic growth we have been seeing and also wages growth. We have seen increases of £1.4 billion a month for the last three months which has dropped the annual rate of growth from 10% to 9.1%. So a little better but perhaps only from white-hot to red-hot so far. Also yesterday an annual rate of 6.7% growth seemed high in the Euro area and we are considerably above that.
The brochures for QE and interest-rate cuts never stated they aimed at a surge in unsecured credit did they? In fact we were assured that we were deleveraging until it was impossible to make such claims.
The official reason for at least some of the monetary easing in the UK was to boost lending to smaller and medium-sized businesses or SMEs. How is that going? Well net lending was zero in November which is not untypical. Also there was a clue to a possible answer to a question several of you have asked which is has lending here gone to corporate buy-to-lets? The category including rented or leased real estate rose by a net £100 million.
So as a perspective we have an area where monetary easing was definitely not supposed to go rising by £1.4 billion a month whereas the area where it was supposed to has risen by £0. It is going to require quite a few counterfactuals to cover that chasm I think!
Moving to total’s we see that unsecured credit has risen to £205.8 billion whereas lending to SMEs has stayed at £165.6 billion.
Meanwhile the Term Funding Scheme which provides cheap funding for the banks has grown to £102.8 billion which is a fair rate of growth considering it only started in August 2016. Those who follow my social media output will have noted challenges suggesting this is not a subsidy for the banks. Odd isn’t it that they have taken £102.8 billion of something for apparently no gain to them?
I am reminded of a past Bank of England Governor who is now called Baron King of Lothbury. He used to regularly give speeches about a “rebalancing” of the UK economy except it was not a rebalancing towards unsecured credit which his successor has managed to achieve. That road has been one which has involved higher house prices (check), balance of trade problems ( check) and one which led to overheating of the economy and interest-rate rises to correct it. In a world where consumer inflation is low and we have only had one interest-rate rise in the last decade the old concept of overheating no longer applies but parts of it can.
If we move to the real economy we see that in spite of the “hokey cokey” style policy of the Bank of England on interest-rates since the EU Leave vote the economy has in fact continued pretty consistently. This morning’s Markit PMI business survey was of a still the same variety.
the survey data are consistent with the economy having grown 0.4-0.5% in the fourth quarter of 2017.
There is an irony in that just maybe some of the rebalancing that Baron King could only dream of during his term of tenure as Governor of the Bank of England may be taking place.
Alongside the solid expansion seen in manufacturing.
If so we are doing better than the raft of annual forecasts released this week would suggest. But there is a potential black swan tucked away in the pack concerning the growth of unsecured credit and in particular its interrelation with the automotive industry. Ironically UK sales only have a relatively minor impact on UK production which is mostly exported but over the seasonal break there were a lot of adverts on the radio for car price cuts or excuse me scrappage schemes which may indicate trouble ahead.
No doubt the Bank of England is “vigilant” but the definition of that word is not what it was……..