Economic Stock-Take

Keep the home fires burning...

House prices have, so far, had a good year, with the Nationwide House Price Index showing a 3% rise in the first half of 2010. The peak (£186k in October 2007) saw a drop to £146 in Feb 2009. Now we’re back at £170k.

Unemployment has stabilised, and this week’s GDP figures showed a startling 1.1% monthly increase.

The UK 10-year bond price is 3.50%. Comfortably distant from Italy (3.98%) Spain (4.18%) and {cough} Greece (10.25%)

Even the BBC has replaced its doom-laden-down-pointing “the Recession” backdrop which accompanies Stephanie Flanders with a sprightly-upward-pointing “the Recovery”.

Whew – So it’s all OK now then ?

Well, not really.

A friend of mine was stuck for a couple of nights in the snow once at a remote cottage. Once the coal and wood had been used on the fire, he dismantled an old unused wooden bed and burned that – that kept him warm at night and then the weather improved. Our situation in 2009 was to burn all the beds, the furniture and the books. The stash of cash under the floorboards was being kept for a rainy-day, so we burned that as well. While the fire was burning, it was all OK.

And that’s just what’s happened with the housing markets and stock markets. Of course the FTSE, S&P and other stock markets would rise; the governments were forcing money back into the economy with printing presses working 24hours and 0% interest rates. That cash was used to buy stuff, and reflate the economy which was the entire point. Mission Accomplished.

There might be a double-dip recession, in my view it’s more likely that the GDP growth with muddle-through at between 0 and 1% for 3-4 years. And that is not enough. It won’t pay for the public sector pensions or for relative UK wealth compared to India / China / South Korea / Brazil.

It won’t encourage companies to create new jobs – The recent Ford profits were remarkable, especially since they seem to have been achieved without replacing the layed-off workers who lost their jobs in 2008.

One last (miserable) thought… let’s just hope that there isn’t another recession, because we’ve used up all the firewood.