From SocGen, with the suggestion that the recent shoddy PMI numbers might get worse before they get better:
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Six open-ended UK property funds (and counting) have suspended redemptions on the back of Brexit induced volatility leading some to worry the market’s on the verge of a sizeable correction in UK real-estate prices.
But this isn’t the crisis of 2007, says SG’s Jean-David Cirotteau.
As Cirotteau and team observe, during the subprime crisis, UK office prices dropped by 38 per cent from peak to trough from the end of 2007 to mid-2009, and within that context the London residential price correction was more limited, with the market falling by 17.7 per cent. Read more
Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services. In the NHS, the technology offers the potential to improve health care by improving and authenticating the delivery of services and by sharing records securely according to exact rules. For the consumer of all of these services, the technology offers the potential, according to the circumstances, for individual consumers to control access to personal records and to know who has accessed them.
UK chancellor George Osborne has announced new budgetary rules that aim to eliminate the current structural deficit within three years and ensure public sector net debt is falling as a share of national income by 2016-17.
Key to the new vision is a budget surplus by 2017-18.
But as the FT’s Martin Wolf warns on Friday:
…the focus on public debt alone is mistaken. Crucially, it ignores the asset side of the balance sheet altogether. Moreover, other things being equal, the bigger the fiscal surplus, the lower interest rates would be. If that encouraged a run-up of private debt, the economy might end up yet more unstable. Alas, the Office for Budget Responsibility already forecasts a big jump in household debt.
Better late than never. With the Labour leadership battle in full swing (and for months to come) here’s one nice and easy explanation of why Ed Miliband lost: he focused on how awful things were economically for the population, at a time when the simplest measure suggests they weren’t really bad at all.
This is the misery index, invented by US economist Art Okun. It just adds inflation and unemployment, with the blue line showing the latest level (latest data is February, shortly before the election). Read more
Strangely enough, even as the importance of the output gap measure has been increasing the last few years, informed estimates about it have remained few and far between.
As the IMF explains, that’s because potential output by definition is very difficult to measure because it’s something that can’t be observed directly. Statisticians can only make rough guesses about what it ought to be based on other observable inputs. All this generally makes sourcing unbiased estimates problematic even on a national level, let alone on a global one. It also adds to the controversy of the academic debate regarding the significance of such measures. Read more
Did you know there’s something called the Eijffinger-Geraats central bank transparency index?
There is one. It’s in the Warsh Review. On Thursday, the Bank of England accepted the review’s recommendations in favour of more open central banking. So, it decided to release minutes of meetings alongside policy decisions as they come out, to release transcripts of those meetings eight years later — and to hold fewer meetings a year from 2016 (8 versus 12). Read more
This is a guest post Toby Nangle, head of multi asset allocation and co-head of global asset allocation at Threadneedle Investments, a UK-based fund manager.
The UK Government could reduce its debt and save the taxpayer £300m by exercising its right to call the ‘War Loan’ and refinance it with new perpetuals with the same coupon but a thirty-year non-call period or new long-dated bonds.
The War Loan is one of the oldest bonds in the market issued by HM Treasury back in 1932. Read more
There is a paper to be written on how UK structured finance nomenclature borrows from the topography of a Britain which is sort of (but not quite) familiar, and which feels reassuringly permanent. We suppose it’s like the Shipping Forecast.
Nothing has been decided yet, but it looks increasingly like BHP Billiton is going to spin off its unwanted smaller assets in a new company — effectively undoing
another dud mining industry deal what’s left of its 2001 merger with South Africa’s Billiton.
But lots of questions remain unanswered. Two stand out in particular: What does this mean for a share buyback and what will PLC shareholders get out of it? (Remember BHP is a dual-listed company with Ltd shares in Australia and PLC shares in the UK). Read more
The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable.
From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…
Commentators have been huffing and puffing themselves breathless with warnings of an imminent market correction in Britain’s property market. Even the European Commission has got in on the act warning policymakers of the risk of “excessive house price rises and increases in mortgage indebtedness”.
What there is no disagreement over is that prices have been rising strongly. According to the Nationwide House Price Index the average UK house price sold for a record £186,512 in May pushing annual pace of price growth up to 11.1 per cent:
This, as the BoE explains on its website, will see the Bank accept UK Export Finance-guaranteed debt capital market notes as collateral for liquidity operations, encouraging (it is hoped) banks to make export-finance related loans to industry. So, similar to funding for lending, but on this occasion specifically lending to export businesses. Read more
When Morgan Stanley’s Huw Van Steenis and his colleague Charles Goodhart ventured into these pink pixels last September, arguing that Britain needed a housebuilding and house-buying support scheme if the economy was going to achieve ‘escape velocity,’ the analytical duo probably didn’t count on getting dragged through the august columns of the FT editorial page.
The ECB’s deflation problem has been well covered.
Years of mass media conditioning that the UK has an inflation problem, however, have assured that the BoE’s flirtation with disinflationary pressure has by and large been overlooked.
But there are clues that this might become a problem soon enough. Read more
This post is just to flesh out a point in this great piece by John McDermott — so read that first.
But we think it’s an important point. An alternative title for this post: What’s under your gilt?
After all, it is the debt that has enabled Her Majesty’s government to turn so breezily confident that currency union with an independent Scotland “is not going to happen”, fully seven months before an independence referendum. Read more
Inflation had returned to the 2% target… and cost pressures were subdued. Members therefore saw no immediate need to raise Bank Rate even if the 7% unemployment threshold were to be reached in the near future. Moreover, it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet and that inflationary pressures would remain contained…
Someone tell cable? Read more
We know that living in a counterintuitive zero-rate world can lead to lay misunderstandings.
For example, there’s the paradox of thrift and the idea that saving can be bad. WHAAT? Then there’s asset nationalisation and government spending, and the idea these can be good for capitalism. WHAAT REALLY? Last and not least — after years of general indoctrination that inflation is always bad — there’s the fact that inflation can actually be a good thing.
This presumably explains why, when the ONS announced this week that UK CPI had slowed to 2 per cent, the story was almost universally covered in the UK press as a good thing and a sign of a wonderfully encouraging turnaround in the economy.
Indeed, UK chancellor, George Osborne, was immediately wheeled out across numerous networks to take credit for his fabulous economic work. Read more
UK home-builders trying to move ahead of the political wind on foreign investors buying up London property?
In any case, though we missed this on Wednesday it seems part of the Zeitgeist — eleven of them agreed not to sell UK (read: London) new-builds abroad before they go on the domestic market from next year: Read more
Does £450/sq ft really count as ‘prime’ London these days?
We don’t know. But these were some interesting charts from Deutsche Bank nevertheless on Monday, about who’s been buying up London from abroad: Read more
In fact, London is in the grip of a terrible and deep housing bust that has only just begun to turn. Greater London house prices, adjusted for inflation, are fully 27 per cent below their peak in the summer of 2007.
We know that one day UK high streets will be windswept vistas of pubs, charity shops and discount grocery stores, with the odd place to pick up your online purchases from Asos.