It’s been widely publicised in the media over the past three months that house prices are on the increase again.
Just after the Halifax and the Nationwide started confirming the reality of all of this, various commentators were suggesting that we might be on the verge of another housing bubble. In fact, I wrote about this very issue back at the beginning of May.
Well, has anyone noticed that the economy has gone from “death’s door”, to “not doing too badly”, and now, to “exceeding all expectations”, in what appears to be a nano-second?
If you remember, growth in the last quarter of 2012 was negative and the press had a field day (or month) leading up to the report of growth for the first quarter of this year. They were able to use the fantastic phrase of triple dip – sounding like the nickname of a highly successful Victorian pickpocket – and how this would be the first time this had happened for 5,000 years. This was leading up to the announcement of the Q1 results on 25th April – yes, less than 5 months ago!
Fast forward just 20 odd weeks we have all the main bodies, including the CBI, the British Chambers of Commerce and the IMF, upgrading their forecasts for UK growth, both this year and next. George Osborne has gone from pariah to a combination of Adam Smith, John Maynard Keynes and Milton Friedman in one fell swoop. Ed Balls was almost lost for words this week – which is a feat in itself – and has resorted to suggesting that the UK turnaround strategy, whilst now working, has wasted three years.
As for my thoughts, has anyone noticed what has actually changed in the macroeconomic strategy?
- Funding for Lending scheme
- Help to Buy scheme
- Mark Carney, the new governor of the Bank of England, giving forward guidance on interest rates, and intimating that rates will remain at 0.5% until 2016
Take all this and combine it with a restrictive planning regime, in a relatively small country, and the fact that most people’s wealth is in their home, and it is not a massive surprise that house prices are on the up.
Now, I may have missed it, but I don’t think anything else has changed in government policy in turning around the economy?
Vince Cable and others are complaining about the new potential for a bubble, and the possible damage this will do. Shock, horror – it is difficult for young people to get on the housing ladder… I seem to remember that having been the case in previous generations too.
I think someone up top has worked out the following:
- Do we feel de-motivated when prices are going down?
- Do we feel good when prices are going up?
- Do we then feel like expanding our businesses?
- Does this equate to more aggregate spending on business stuff?
- Does that mean someone might be buying more stuff from our businesses?
- Does that mean the economy grows?
- Does that mean more income for the treasury?
- Does that mean they can reduce the deficit?
- Does that mean they might be able to reduce taxes?
- Does that mean there is an election around the corner?
Ever since I remember we have had “boom and bust” in this country. Ever since I remember we have had successive governments say that were going to bring about an end to “boom and bust”. Ever since I remember they have all failed! Even that last Prime Minister of ours, who I believe was a left of centre, highly prudent, son of the manse, got sucked in by the promise of another term in office, and forsook his widely publicised golden rules on borrowing to increase Public Sector spend.
So, to summarise, cheap money has suddenly become available to the banks, as long as they promise to lend it out (note: lending to small businesses remains subdued), the government have thrown in a few guarantees, and hey presto, we have wonder economics and confidence has returned.
Everyone in power knows what is going on, they don’t really want to do anything about it, other than accept the plaudits.
Maybe there is some justice then for the pensioners, and all those with a bit of money in the bank, who probably own their own homes but are getting below inflation returns on their savings, which is paying for the cheap money being lent by the banks.
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Image by: Stuart Herbert