Why We Should All Be More Optimistic
The weather has been fine for a few days now and, as winter is left behind, I think it’s time for a bit of optimism.
The UK has been gripped by general depression for some time and with good reason: as the painful rebalancing of the economy continues people have been losing their jobs and for those still with jobs inflationary pressures and frozen pay packets have taken their toll.
Despite this I would argue that we are not as badly positioned as many other countries and the recent fall in inflation and unemployment does give some cause for optimism. The British are a nation of entrepreneurs and there are signs that the private sector is starting to create more jobs.
Most people are convinced that a deficit reducing strategy is vital but the argument boils down to how much should be cut and how quickly. We will only find out whether the coalition government has got this balance right or wrong when we look back in a few years and compare our economic position with that of the US in particular.
The credit rating agency Standard and Poor’s recently warned that America risks losing its AAA credit rating for the first time in a hundred years because of its inability to rein in spending. The contrast between the Bernanke / Obama approach and that of King/ Cameron is getting starker as time goes on. For economists it provides a rare chance to compare different strategies employed to counter similar economic problems at roughly the same time.
Another contrast is the approach taken by the Irish government versus the approach taken by the Icelandic government. I feel desperately sorry for the Irish at the moment: they had taken early and responsible steps to tackle their budget deficit only to be forced to accept an IMF bailout and to see their credit rating reduced to near junk status.
It’s easy to look back on the “Celtic Tiger” period with distain but we were every bit as stupid in the UK, the difference being that our economy was not as wholly dependent on construction as that of the Irish and the supply versus demand for housing in the UK is stacked more heavily in our favour. The Irish are also in the unfortunate position of not being able to contol their own interest rates and as the European Central Bank raises interest rates to counter German inflation the Irish will suffer further.
In Iceland a public referendum decided that they would not repay Britain and the Netherlands the $5bn owed after those governments chose to reimburse their own citizens after the collapse of Icesave. This will inevitably cause serious damage to Iceland’s credit rating but for now their economic situation is looking better than Ireland’s and their economy seems to be recovering faster than most economists had thought (admittedly helped by it being a more open economy and being outside of the Eurozone). This is another fascinating contrast of approach and history will again be the judge of the efficacy of each. It seems on the face of it that over the short term at least taking responsibility doesn’t always count in a government's favour.
Perhaps unsurprisingly given the above the UK property market is still in a slightly strange place. London is largely healthy again while performance in the rest of the country remains muted and the polarisation between North and South becomes starker. Asking prices have actually gone up according to recent figures by the Rightmove house price index despite a glut of unsold houses on the market. As mortgage lending remains limted this could be more in hope than expectation.
Again context is important. It’s easy to forget that we are part of a global economy and that elsewhere in the world economies are booming, most particularly in South East Asia, China and parts of South America. Overseas investors continue to support the London housing market and the Hong Kong and Malaysian offices of some of the large agencies such as Savills and Hamptons are selling serious volumes of London property.
Looking forward I suspect that at some point the Euro is going to take a bit of a hit as one of Greece (my tip), Ireland or Portugal is likely to default. The UK will start to look more attractive in comparison with many other developed countries and the Olympics next year could provide the catalyst for stronger economic recovery.
Whatever happens in the wider economy we at Bold Spirit will continue to look for good quality investment propositions: to see a selection of our latest stock please click here. I hope that you and your family enjoy a relaxing Easter break..
Article Courtesy of Dominic Farrell @ Bold Sprit
