Sunday, April 01, 2007

Don't be an April Fool

Now I’d like to share with you my thoughts on the UK economy I’m an interested observer rather than a professional bore but here goes….

There is a real danger to the UK economy that there appears to be one method one guaranteed way to make money – buying and investing in property.

What is the likely effect of this?

Industrialists/investors (oh and of course the pension funds that Gordon Brown mistakenly robbed about 10 years ago) put a disproportionate slice of money into property (be it residential or commercial).

Less money is spent on technological advances, working to improve productivity and generally keeping UK industry (service and manufacturing) up to the highest levels.

Less employment, less money for people to buy houses with.

The large pool of cheap labour sucked into the UK (particularly in the south east) further reduces the pay rates they are willing to work for, the economy deflates and the economy declines, a glut of property leaves many caught in negative equity.

I would also note that

1) The economy is far more frantic than the treasury figures would indicate, I’m not sure if this is because parts of the economy are declining quite rapidly but the London economy is booming like never before helped on my recent city bonuses.

2) The inflation figures the government would like the UK population to believe are nothing like the true figures 4.6% is a measure of RPI which is hushed up as opposed to the 2.8/2.9% that the Bank of England talks about and this is still some way away from reality – House prices are rising at about 10% per year and many other increases like transport and council tax are far higher than is reported.

There are many people buying at what to me looks to be the peak, this is not the way to make money but the way to lose it, the bank of England and the government need to manage a safe landing this will mean taking money out of the economy and re-invigorating the social provision of housing.

Here's an other view that might be of interest