oh dear: German team damn UK economic 'miracle' as a sham

[AtW]

It builds character!

...or kills it

[beaker]

Nothing new in this article that anyone with common sense can't see for themselves. We have become an extremely silly and shallow country - some pain will do us good.

It builds character!

[sasguru]

Nothing new in this article that anyone with common sense can't see for themselves. We have become an extremely silly and shallow country - some pain will do us good.

[beaker]

*yawn*... population schmopulation... cheap credit is drying up... borrowing rates will increase... so people won't be able to borrow as much... so less demand for more expensive property... so property will stop going up in value... more people will choose to rent as it's cheaper and property prices not going anywhere... BTL'ers will sell as they can't justify subsidising their rents will zero or negative equity growth... prices will drop as the market is flooded with cheap ex-BTL properties... people will have no incentive to buy them until it's cheaper to buy then rent again...

This whole thing was built on the deregulation of the mortgage industry and access to cheap credit. People have over-extended themselves to speculate on price gains. Even at 5.75% interest rates are still low. I have a feeling this is all going to end very badly. Good time to pay off as much debt as you can and invest in high quality assets and cash.

Apart from that there's never been a better time to buy property

[sasguru]

NR: Back on track. Silly cat.

All the drugs you took (take?) have addled your brain.

[Bagpuss]

So those people drawing money out panicing was an illusion?

The point is people react and often over-react on expectations. Do you think the next time the economy starts to look grim people will act differently than ever before?

You cannot be that naive

[Devlin]

I don't see why is has to go pop! The UK has decided that property is like diamonds i.e. rare and valuable. That's it. And the predicted 75M UK population in 20-30 years' time will only add to the property price thing.

We live on an island, with limited, useable land, and we have lots of folk breeding like insects, folk coming in from abroad, etc. BOOM!!! BOOM!!!! BOOM!!!!

Bollocks, if they were so rare, why is rent still so much cheaper than buying?

[DBA_bloke]

You can't change basic Human behaviour, see Northern Rock

HTH

NR: Back on track. Silly cat.

[Bagpuss]

You can't change basic Human behaviour, see Northern Rock

HTH

[DBA_bloke]

2 words Economic cycle

Two words: trend busting

[Bagpuss]

2 words Economic cycle

[DBA_bloke]

I don't see why is has to go pop! The UK has decided that property is like diamonds i.e. rare and valuable. That's it. And the predicted 75M UK population in 20-30 years' time will only add to the property price thing.

We live on an island, with limited, useable land, and we have lots of folk breeding like insects, folk coming in from abroad, etc. BOOM!!! BOOM!!!! BOOM!!!!

[wendigo100]

We have been saying much the same thing as the report for a couple of years now but the bubble has yet to burst.

The longer it goes without bursting, the bigger the pop when it does.

And it will.

[The Lone Gunman]

<Snip>
The end is truly nigh

I don't think the end is nigh. We have been saying much the same thing as the report for a couple of years now but the bubble has yet to burst.
As long as there is a high demand for housing and Golden Brown can keep increasing the number of civil servants and the rest of us can afford the taxes everything should be OK.
Considering the report yesterday of the expected population increase (didn't CD get slaughtered for saying that a couple of months back) there is going to be serious demand for housing stock for some time to come. All those extra migrants and their children will require more public sector workers.

[AtW]

German team damn UK economic 'miracle' as a sham

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 4:15pm BST 22/10/2007

Britain's economic resurgence over the last fifteen years has been driven by record levels of household debt and a public spending spree that cannot continue, according a German-led team of economists.

In a damning new report "More Mirage than Miracle" published by the free-market think tank Policy Exchange, the analysts said Britain was relapsing into high-tax and high-regulation sclerosis just as the rest of Europe begins to shake itself out of statist lethargy.
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The country's underlying slippage has been masked by a housing boom that creates a false sense of wealth and encourages people to over-spend by drawing cash from their homes.

The British are resorting to a Faustian Pact that leaves many of them with an ever greater debt burden.

"From 2001 to 2006, a total of £256bn in equity was extracted from UK property values in this way. Dependent as it is on rising house prices, housing equity withdrawl cannot continue to prop up our consumer spending at its current level," said the report.

The dramatic change in attitudes to debt has caused the UK savings rate to plummet from 8.3pc of disposable income fifteen years ago to around zero. Personal debt has risen by 137pc since June 1993 to £1,343bn, greater that annual GDP for the first time.

"Just as private households have been living beyond their means, so has the state. The expansion of the public sector artificially inflates GDP growth data: it cannot continue much longer.

"Judging by the fiscal deficit trend, the UK is now in worse fiscal shape than almost any other major Western country. In the event of an economic downturn, the UK now has little leeway for stimulus," it said.

The report was mostly written by two German economists: Holger Schmieding, chief Europe economist for Bank of America, and Policy Exchange's chief economists Oliver Hartwich.

"We're two Germans who came to Britain believing its was a free-market haven and we're disturbed by what we've found. This is the year when the state sector in the UK as a share of GDP rises above the level in Germany. (AtW's comment: and Germany produces a lot of real goods for export) It's shocking," said Dr Hartwich.

"The rest of Europe has been cutting taxes and pushing through reforms, and what has Britain done? The economy has in effect been been 'bailed out' by housing inflation and debt," he said.

The report cited a World Bank study showing that Britain earned top score as a place to do business in just one respect; "the ease of getting credit". It came 54th in the category of dealing with licences, a sign that the regulatory arteries are furring up.

Separately, Barclays said it was downgrading its forecast for the UK economy and now expects the Bank of England to cut rates a quarter point in Feburary and again in May, rather than remaining on hold deep into next year.

Barclays said the debt markets have not yet returned to normal following the August credit crunch in America and the Northern Rock debacle in Britain. Households and firms are likely to face a "pronounced rise in the effective borrowing rate".

"We now think domestic demand will slow markedly in the next few quarters," said the bank's UK economist George Johns. Britain's heavy reliance on the City will also take its toll. Barclays expects growth to fall from 3.1pc this year to 2.2pc in 2008.

Bank of America is forecasting four rate cuts to 4.75pc by the end of next year as the chickens come home to roost in Britain, with sterling dropping from £2.03 to around to £1.84 against the dollar.

In a sign of changing perceptions in Europe, the Spanish financial group Coface said Britain faces a "dangerous cocktail of a real estate bubble and household indebtedeness".

The group also put Spain on negative watch, warning that the country would soon follow the US and the UK into trouble as the property dominoes topple.

Britain's household debt levels are the highest of any major economy in Europe or North America, but with rates at 5.75pc it has ample room to ease monetary policy to cushion a hard-landing.

Those southern Euro-zone countries facing deflating property booms may not be so lucky. Their interest rates are now set in Frankfurt, largely to meet the quite different needs of Germany and Northern Europe.

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The end is truly nigh