I wrote yesterday morning that the post-Brexit economic honeymoon looked to be over. More signs emerged as yesterday evolved.
As the FT noted:
The availability of consumer credit tightened for the first time in six years during the first three months of 2017, the Bank of England said. High street banks and building societies told the BoE that the flow of unsecured credit is likely to slow further over the coming year and at a faster rate during the second quarter.
In itself that could be seen as good news: there is a debt bubble in the UK economy. But given that growth has been debt dependent and wages are declining as well this suggests a downturn is going to be uncomfortable.
And as the UK has also reported, the rate of UK house price growth is slowing. Again, in itself that is a good thing: house prices are too high and the downturn is partly because of a decline in the buy-to-let market, which is also welcome. But, as is also known, UK economic fortunes are uncomfortably associated with house prices.
The signs that there might be trouble ahead are growing. It may not happen, but I fear a debt bubble might burst as people fail to make ends meet as this year progresses. And that's always the basis for a downturn.
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The doom mongers seem to have gone into overdrive again. Their trouble is that they are wrong so often that few understand when they are right. I am counting my cowrie shells.
The knee-jerk ‘short-termism’ of politicians and media gives a misleading reading of where the economy is heading in the longer term. Against a back-drop of swings & roundabouts, I’ve yet to see any long-term indication that the UK economy is moving in a direction that will benefit the 80% and not the 20% (I’m being generous percentage-wise).
As you, Steve Keen and all other savvy commentators have said, the country has a very serious personal debt problem that shows no signs of abating – https://www.bankruptcyadvice-online.co.uk/debt-statistics.shtml. This can only end in tears, unless there is a general debt amnesty/jubilee – which ain’t going to happen any time soon is it?
Productivity continues in the doldrums with quarterly growth still below the 1994 to 2007 average – https://www.theguardian.com/business/2017/apr/05/weak-productivity-leaves-uk-trailing-other-g7-nations.
Investment is sluggish – http://www.cityam.com/258673/uk-investment-levels-expected-stay-low-says-bank-england.
And now inflation is eating into whatever scant wage increases have been granted – https://www.eca-international.com/news/november-2016/salary-trends-2016-17-uk-release
I’ll not bore you with all the other metrics about which you know more than me. If anyone has data that point to long-term renewal I’d be interested to see. Furthermore, as you have stated, all the uncertainty surrounding the Brexit outcome can only additionally complicate attempts to redress the general downward trend.
And these are only the measurable economic indicators. Arguably the societal situation is even more dire, as junk neo-liberal economic policy continues to impose destructive auserity measures instead of investing in the nation’s future.
It’s Easter and one wants to celebrate renewal and rejuvenation. And so one should. But the future is not looking rosy. The only thing that is in doubt is the time-scale. Capitalism, and Neo-liberalism in particular, is masterful at economic sleight-of-hand. What you see is not what is really going on behind the scenes. The only tricks it has left is, by one way or another, to increase the debt and further inflate assets, which will provide temporary relief for some and be spun as good governance. Perversely the only snippet of good news I can find comes from the Marxist economist Michael Roberts who predicts the poor economic performance could bring down the Torie at the next election: “But if ‘it’s the economy stupid’, then it may not be plain sailing for the Tories in 2020 — and that’s assuming there is no major global economic slump before then.” (https://thenextrecession.wordpress.com/2017/04/12/economic-well-being-and-brexit). persoanlly I’m not so sure. Regrettably for the nation even a change of government won’t solve the systemic problems the country is facing. It will be more of the same but painted in different colours. Whatever John McDonnell may think in private he doesn’t have the cajones to take on the MSM.
Apologies for this lengthy post. It’s Good Friday and I’ve time on my hands. It was difficult not to respond accordingly to your headline!
Thanks for it
Length is fine when the argument is worth following
As John Maynard Keynes warned we’re all slaves to ideas, often bad ones, and the UK seems to be trapped with a party political consensual pair of very bad ones; Expansionary Austerity Policy and Brexit. It’s going to take a fairly epic purge of ideas to get the UK back on track to a healthier economy.
I have little faith in anyone in this Government wanting to put the brakes on credit creation.
In fact there is a huge political incentive to do the wrong thing and set lower rates as Greenspan used to do in the US when things seemed to be slowing down.
Or the Tories will come to some sort of arrangement with their banking mates in the City. As Steve Keen points out, committed neo-libs see money as money – whether it is debt or cash. They just don’t care where it comes from apparently.
Inflation is a problem and I’m seeing it now too in my daily life. I have as a public sector worker a 1% wage rise but a 2.6% rise in my council tax this year as well due to Government lowering LA grants. I’ve already been hit on NI by George Osbourne.
This year we will take one week’s holiday as a family. The ability for us to save is being compromised like never before. We have a number of things we need to do for the house and as the kids get older they need more financial input (my son recently passed his grade 1 in piano and we pay for the tuition). But in the past we could do these (by saving) and have a long break. Not at the moment that is for sure. And in the future?
As you might recall, the other half of my family on my partner’s side are very asset rich. My brother in law leaves the country 6 months of the year and has his money hidden away in trusts protecting his income from all of this and his property assets are abroad.
My retired mother in law gets her state pension plus has all her wealth in trusts (able to still benefit from this money although it is in someone elses name)or in investments and she gets a rebate on her Council Tax because she lives on her own!!!
I don’t mind others doing well at all or the elderly being looked after. But is tax evasion a definition of ‘hard work’?
You don’t just look after certain portions of society and let others fend for themselves do you?
And yet the Tories – who could close these loop holes – talk about supporting hard working families like me and millions of others whose sole incomes are being hit hard because these Tory numpties do not want spend any money.
None of this can be justified in my view. It is pure mendacity by the Tory party. There is nothing fair about this at all.
Nothing.
Nil.
Zilch.
PSR
Whether or not you, I or anyone wish it I foresee a massive credit reduction.
I’m not wholly sure how all the mechanisms play out, but Trump’s economic policy is to seriously accelerate a US economy that is already chugging along at a regular 2% pa which most economists see as the ideal, If Trump cuts taxes & regulation massively you’re going to see the US trade deficit, which isn’t healthy now, fall down like a one-legged man going the hokey-cokey. Trump’s answer, we must assume from his hustings (although should we assume anything from those?} is going to be tariffs.
The combination will be US inflation going higher than Mary Poppins on a crack-pipe & the Fed massively ratcheting up interest rates. If the US interest rate becomes (say) 3.5-4%, which I honestly could see, that is going to have a horrific impact on liquidity in the ret of the world! Like, there won’t be any! All the Gelt will be in the states searching for safe returns on the world’s safest currency. For Europe & China that will be tough, but for the UK which needs cheap credit like an alcoholic needs a nice cold special-brew in the morning, it will be an unholy disaster!
You heard it here first.
Eriugenus
With real wages falling (still) and inflation here all I can see is a reluctance by this Government to put up interest rates because they will want to maintain any ‘feel good’ factor that remains standing in these austerity infected lands. Some Tories are already worried that the ‘pitchforks are coming’.
Remember all those repossessions in the 1990’s? A major contribution to the Tory loss of power in 1997 perhaps? I don’t think May and her fellow denizens will have forgotten that.
What I foresee is a tightened stranglehold on the poor, the NHS and the public sector because the Tories think that Government spending just causes inflation (or can be blamed for it in the public sphere).
I would be very surprised if the Tories let the BoE put up interest rates so high. It would be like slitting their own throat politically. They will make someone else pay for it somehow – public sector workers, NHS patients, the disabled, unemployed etc.
Beware of baboons with levers.
That particular lever – credit tightening – is best pulled when policy makers know what they are doing.
Right now, we have cost of living inflation, but no wage inflation at all.
Will someobody please find me an economist who understands *this* economy, where one of the connecting rods is broken, in both our models and in our recorded history of the real economy?
Failing that, can someone find the zookeeper?
As Lou Reed said ‘This here’s a zoo and the keeper ain’t you / And I’m sick of you, so sick of you / Bye bye bye’. Huh – if only…………
Apparently – according to Positive Money – the word ‘credit’ is related to the Latin term ‘credere’ meaning to believe or have trust in.
This is why I think the Tories won’t start messing with interest rates: because credit has replaced the lack of real cash in people’s wages and this makes people BELIEVE or think that they are doing OK and keeping up with the Jones’.
Using credit has been acceptable in society for a long time now.
Higher interest rates will lose the Tories the next election – you can bet on it. You can also bet that they know it too.
Bashing the downtrodden, overworked and increasingly badly paid will not it seems.