Comments: Don't bank on the euro as sterling slides

"One is that a rise in prices does you no good because until you exit the market you cannot realise gains. But that is true of any asset and plenty of people tap into housing wealth through equity withdrawal"

Are you "Wealthy" if you borrow money, against an opinion of what your asset is worth? What if the opinion changes and you have released equity only for the value of the asset to plunge significantly?

The key word to me is "borrow" so I would say, you're not wealthy if you have to borrow. Wealthy is to me, winning the lottery on a stake of £10. that leaves you £2m in the black.

Borrowing and equity withdrawl just don't fit in the same sentence when you're talking about how "well off" someone is. You are gambling when you use equity withdrawl against the opinion the asset won't plunge in value. Exactly how well off are you if say a house dropped 25-30% in value after you've withdrawn "equity" which is really nothing more then a gamble based on opinion.

Posted by Dan at January 20, 2008 08:25 AM

.....and another thing.

Not only must the value of the asset fall significantly, but it also needs to rise strongly in value to buffer against what you withdraw against it.

Maybe a better way, which carries a low risk is to sell up, downsize and use the cash to buy what it is you want - at least that way you know if your circumstances chage, you're not left with an asset that has declined in value against a whopping mortgage debt.

Going heavily in to debt, is not always a good thing.

Posted by Dan at January 20, 2008 08:31 AM

Sorry, typo error the first line should read:

"Not only must the value of the asset NOT fall significantly"

Posted by Dan at January 20, 2008 08:34 AM


I suspect we could argue about this until the cows come home, but for me your analysis of the affects of rising house prices is flawed because it ignores the concept of being long, short or flat in a market.

We all have a basic need to consume housing over our lives, so essentially are born short one house. If we buy a house, we become flat (excuse that pun). We are no more long housing than we are long oil if we have a full tank of petrol and need to drive 500 miles. Equity withdrawal is not "tapping wealth", it is taking on more debt against an asset that has risen in value on paper. Your house is not going to repay that debt unless you sell it, and then where will you live?

To say that non-owners don't lose from rising prices is just wrong. If you are short in a rising market then you are obviously on the losing side. Look at it from the reverse angle - are you saying that potential first time buyers are not benefiting from falling prices?

The beneficiaries of rising house prices have been buy-let-investors, estate agents, banks and the government.

The losers have been priced out first time buyers (mainly young people), and owners for whom the next rung on the "ladder" has risen out of reach (I know plenty of home-owning families in that category). They are in the process of being joined by recent first time buyers who have over-extended themselves in the belief that there was no downside risk to prices, and those who have been encouraged to borrow against every last bit of equity in their home.

Posted by Top Cat at January 20, 2008 09:27 AM

Don't you think that any political, fiscal, and monetary attempt to prevent the UK from going into recession will - as a side effect - also kill the currency?

Posted by Michele at January 20, 2008 11:49 AM

As I've pointed out many times before, most equity withdrawal is as a result of a downsizing decision, or older people leaving the market altogether. Accessing the wealth in your home while still living it does in most cases involve borrowing - but only because most owner-occupiers doing it do not want to permanently hand over any of that wealth. But it is possible to do so, through equity release or, as has become increasingly common in recent years, selling part of the land for "garden-grabbing" property developers. In these cases, home-owners are selling part of their housing wealth at its current valuation.

In terms of whether people are long or short of property, I'd see it in a different way, as a version of Modigliani's life-cycle hypothesis. Children, plainly, do not own property. Young people, when they do, typically find it a struggle. Older people with equity are always the biggest gainers in any period of rising house prices. Very old people are typically net sellers. We consume/own at different rates depending on age, and the benefits of ownership vary with age. Even if you take the view that young non-owners are the losers in all this, it is hard to argue that their losses exceed owners' gains.

As for killing the currency to avoid recession. Let's be realistic.

Posted by David Smith at January 20, 2008 03:38 PM

Hi David,

So do you believe that taking equity from property is classed as being wealthy? Surely it's nothing more then just borrowing against the roof over your head? Which in itself is a gamble against the expectation that value will continue to rise and cover the extracted "wealth" in the property, as well as any outstanding mortgage.

Not what I would call being wealthy, more just fortunate that a bank or building society has agreed to give you money against the current valuation, you'll still owe that money if the value of the property falls significantly - THEN how well off are you?

Wealthy = Lottery win, owner of a business turning massive proffits every year, receiving a substantial inheritance etc.

Wealthy is not being fortunate enough to have a bank agree to lend you money against the CURRENT value of your home - that, is just lucky.

All in my opinion of course.


Posted by Dan at January 20, 2008 03:50 PM

I know there's a lot of emotion attached to this subject but just try and think about logically. Firstly, there is plainly no inconsistency between being lucky and being wealthy, in fact there's a pretty close correlation. It would be nice if everybody who was wealthy had got there by genius and hard work but sadly, that's not real life.

Secondly, just follow the argument about equity withdrawal again. The reason people borrow against the value of their house when they want to withdraw equity in this way (which as I say is a small proportion of equity withdrawal) is because, as I said, they do not want to permanently hand over their housing wealth and thus give somebody else the right to part of their future house-price gains. But there's nothing to stop them doing so. The value of the house, by the way, does not have to rise from the point at which equity is withdrawn or sold. Indeed, given the amount of housing equity in Britain, and given that very few people remortgage themselves to 100%, the value of the house could fall quite a lot.

Posted by David Smith at January 20, 2008 04:05 PM

"they do not want to permanently hand over their housing wealth and thus give somebody else the right to part of their future house-price gains."

Is the paragraph based around speculative opinion?

What if the house doesn't gain? If you withdrew equity and the value continued to grow, then I could understand how it could be quantified that you are a "wealthy" person - especially if you withdraw, the asset continues to gain value and you sell at a price which pays off the mortgage (including the released equity). The paragraph I have quoted, seems to mildly imply that houses will always continue to gain value and never fall?

I'm still not entirely convinced by the argument that debt, can be wealth.

Posted by Dan at January 20, 2008 05:18 PM


You argue
'Finally, are rising prices good for owners but bad for the country? Again this does not stack up. The 70% who are owner-occupiers gain, while the 30% nonowners do not lose Ė they just donít gain'.

Why is excessive inflation in house prices of no ill but inflation of every other item (foodstuffs, fuel, etc.) accepted as bad ? All inflation beyond that that greases the wheels puts costs on an economy, and the cost of excessive house price inflation is on future home owners through higher borrowing costs, less than optimal allocation of capital etc. and not just a hypothetical asset gain forgone.

You also seem to imply prices have risen simply to balance changes in suppy and demand. And this can explain prices doubling or trebling in many areas in 10 years, with population and expansion of the economy only a fraction of that?

And if it were a factor of supply and demand alone why are there now fears of marked price falls? There has been no mass exodus or overnight increase of supply. (And high mortgage costs post credit crunch are only expected to affect a modest % of borrowers).

If there is a sharp downturn it shows there has been froth in the market from buyers driving up prices (egged on by estate agents and cheerleading mortgage company economists) promising themselves and each other that the housing market is a one-way, risk free leveraged bet. All behavioural economics, exuberance, herd-like optimism.

Which has introduced costly inflation into the economy. As would rapid house price deflation... but that's another story.

- Mark

Posted by mark at January 20, 2008 07:04 PM

No of course debt isn't wealth but the excess of asset values over the debt taken on to acquire it is. As the piece says, the value of the housing stock is currently some 3.4 times outstanding mortgage debt.

On the other point, of course it is not just a question of supply constraints - I just mentioned that as an additional contributory factor. The great driver of house price rises in recent years has been the shift from an interest rate norm of 10-12% to one of 4-6%, greatly enhancing people's ability to service debt which, in an environment of continuous economic growth and rising unemployment they have felt confident about doing.

In the long-run, house prices rise at least in line with incomes. There will be periods when prices stall or fall but that long-run relationship will survive. That is why most people do not want to surrender their housing equity, as opposed to borrowing against it.

Mark's other points are all mentioned in my penultimate paragraph. The only way falling housing prices could be inflationary would be if they led to an undue relaxation in monetary policy.

Posted by David Smith at January 20, 2008 07:36 PM

Re the Pound.
Sure, let us be as realistic as Harold Wilson, and Norman Lamont, but let us also have an educated discussion on where we see the Pound going.
If we believe BoE wants to defend the currency (down 20% vs the Euro since 2001) then rates will not be cut aggressively. If rates move to the 4% region, with the growing UK BOP deficit and all kind of debt (consumer, public) the Pound will easily reach 1.7 dollars to the pound, therefore a cross rate of 1.15-1.20 EUR for £1.

Posted by Michele at January 20, 2008 07:44 PM

Well that's hardly killing the currency is it? Maybe it will fall like that, maybe it will not. But to talk about a 20% fall against the euro from a position where the euro was at a record low against both dollar and sterling is disingenuous. The fact is that sterling has been remarkably stable on an effective basis for 11 years. It is a few cents below where it was when the euro came into being on January 1 1999. A somewhat lower pound is quite helpful in terms of rebalancing the economy. And, of course, the Bank would not cut if it feared that the effects on sterling would be serious enough as to have a significant inflationary impact.

Posted by David Smith at January 20, 2008 08:02 PM


I have to say that I find your piece a bit muddled and contradictory. You start by saying:

"When sterling is strong the effects are mainly beneficial, certainly for consumers and tourists. Even exporters do not complain too much."

Then later you say:

"On the other hand some of the activity that was relocated to other parts of Europe a decade ago, when the pound rose sharply against the euroís constituent currencies, could find its way back here. With 55% of UK goods exports going to euro countries there could, whisper it quietly, be a revival of British manufacturing."

Given that, despite all the hype about the growth in financial services exports, the great majority of exports are of manufactured goods - and we have had a remarkably poor record in this respect compared with other G8 countries over the last decade, how do you square these two statements?

Posted by HJHJ at January 20, 2008 08:05 PM

No it's quite straightforward - it just requires a little thought on the part of the reader. Exporters stopped complaining about sterling's strength because in the main they have become accustomed to it over the past 11 years, have outsourced their component supplies to other countries, and in the case of the recent rise against the dollar saw it as a welcome bulwark against rising raw material prices. A lower level for sterling against the euro, if maintained, will not lead to a sudden surge in exports but may, over time, lead to different strategic decisions being taken over the location of production and component supplies, thereby reducing Britain's structural trade deficit.

Posted by David Smith at January 20, 2008 08:17 PM

Top Cat. Nice post, but on average every person inherits some wealth at some point, so are born short of slightly less than one house. But the argument still stands IMHO.

David, regarding: "... while the 30% nonowners do not lose Ė they just donít gain." . This is correct if the majority of the 30% nonowners do not intend to purchase a property in future. I guess you have figures to substantiate that claim.

In a democracy, the majority wins out over the minority: "Older people with equity are always the biggest gainers ...."

Posted by Nick Thorne at January 20, 2008 08:22 PM

Ah David, you're such a pleasant optimist. I wish I could be so nonchalant.

If you got any more happy/postive about the UK economy you might even be able to out-compete the urbane cheerfulness of the BBC guy (Gavin something or other) - maybe then we could see our man David on TV a little more frequently (and despit our attcks on you we would really like that to happen)! I take the liberty of guessing that you may in fact be a little more of the Patrick Moore persuasion however, and doubt you would feel at home at the Beeb.

I am a little suspicious about how much Murdoch Editorial design is in you columns though. I've always detected the same kind of Panglossian gloss in Irwin stelzer's musings, and wonder if that is coincidence or line-toeing.

Anyway, back to that old chesnut, house prices, debt and equity.

The massive social exclusion and effective redistribution of wealth from non-owners to owners is a socio-economic issue so important that this kind of stark analysis from the dismal scientists seems flippant sometimes (30% social excluded -that's OK). Aside from that though, the stark economic analysis needs alot more argument to back it up.

You frequently point to the net asset position of UK in defence of our resillience in face of a serious downturn in house prices. On the surface, you have the numbers on your side, BUT what we need to know is how much assets (homes) increase in value for every pound of debtr taken on. It's certainly not a uniform and equal relationship. My point - increases in (mortgage) debt cause increases in asset prices (which are determined at the margin) tp grow disproportionately: So one pound of debt creates an uplift in asset values of more than one pound. That is my hypothesis, but I would love to hear some facts from you.

Continuation of hypothesis - as credit is restricted, the down turn in asset prices (which are determined at the margin) will be disproportionate on the way down. Yet, the extant debt burden will remain the same.

Therefore, the cushion that you so frequently refer to (between debt and asset values) may not be as comfortable as you portray.

In fact, rather than sitting on that big comfortable feather-packed cushion that you portray so vividly (and which most of you readers probably feel so comfortable with, they fall into a lovely everything's-absoluteley-fine-narcosis and wake again to buy another house), it may be that the UK finds itself sitting on a hard bench instead; whipping itself with birch once the big unwind gets underway.

Posted by T Gumbrell at January 20, 2008 10:51 PM


I don't follow your argument. One minute you are saying that the effects of a strong pound are mainly beneficial and that even exporters don't complain too much, and the next you refer to the structural trade deficit and say that it will gradually be reduced if the pound is at a lower level. So is the structural trade deficit not a non-beneficial effect of a strong pound?

In my experience (having worked most of my life in industry), exporters have given up complaining since they have become resigned to the fact of a high level of sterling and the indifference of policy towards this. However, they certainly wouldn't agree with you that the effects are beneficial or even benign and if you ask them, they would say that it has been a major problem - as evidenced by the fact that industrial production has stagnated in the last 10 years and they have had to make a good proportion of their workforces redundant. I can assure you that round after round of redundancies has been no fun whatsoever.

Your argument that exporters " in the case of the recent rise against the dollar saw it as a welcome bulwark against rising raw material prices" seems flawed to me. It may insulate exporters from higher raw materials import prices, but that same strong pound also makes exports more expensive for those that buy them. You'll say, of course, that at the same time the pound was falling against the Euro and that most of our exports are to the Eurozone, but that, overall, is benefit of a falling pound against our biggest trading partners, not a rising one. What matters overall, I'd have thought, is the trade weighted Sterling index - if it rises, exporters, in the round, find things more difficult, if it falls they find things easier and overall, it was falling. So it wasn't so much the rise against the dollar that was beneficial - it was the fall against the Euro which happened at the same time. Without the latter, the former would have been of no benefit whatsoever to exporters.

Let's also think about why we have had a high pound. The number one reason, over a period, has been comparatively high interest rates. Why have we consistently needed higher interest rates than other countries to keep our inflation at a similar level? I would argue that it is largely because too much of our economy (compared to other countries) tends to be inflationary and is insensitive to interest rates (public sector, cosy supplier relationships with the public sector, closed shop professions, etc.) and so much of it is service-based (and serves only the domestic market) which shows generally lower productivity gains than industrial production and thus is more sensitive to labour cost inflation. This means that the part of the economy that is sensitive to interest rates (i.e. the bit that has to compete internationally, of which manufacturing is a prime example) has to be squeezed harder to control overall inflation.

Posted by HJHJ at January 21, 2008 09:06 AM

In danger of getting a bit kinky towards the end there, but on the substance of what you were saying. I don't think one can equate the 30% who don't own homes with social exclusion. Many people choose not to own. When the Tories sold council houses at huge discounts (the discounts are now quite small) many chose not to buy, preferring the security of local authority ownership. The ceiling for owner-occupation is probably below 80%, for this and other reasons. Many potential first-time buyers feel frustrated now but that has always been the lot of first-time buyers. The periods of easy entry into the housing market have not been typical. Previous generations had to endure the vagaries of mortgage rationing.

As for the numbers, mortgage debt has risen by roughly £750 billion over the past 10 years while the value of the housing stock has risen by more than £2.6 billion. The rise in housing equity has thus been very considerable. Mortgage debt, incidentally, is likely to continue rising, including this year, but at a slower rate.

Posted by David Smith at January 21, 2008 09:11 AM

Total housing stock may be "valued" at £4trillion but I'd like to see what the "value" would be should everyone decide to sell at/around the same time - of course, this wouldn't happen, but if it did, the total would be significantly lower than £4trillion. Therefore the value attributed to the total is meaningless.

Posted by Kev M at January 21, 2008 09:21 AM

The wonders of the internet mean that these comments can sometimes cross in the post, so the suggestion of kinkiness was directed at T Gumbrell, not HJ.

HJ - as I say, the point is quite simple, and I'm surprised you can't grasp it. There's a short-term effect and there's a long-term effect. A year ago, when the sterling index was at its highest since the early 1980s, manufacturing bodies did not complain. As I said, and you repeated back to me, industry has got used to a strong pound. But if the pound's lower level is sustained, that will help the trade deficit. I wouldn't expect exporters to be leaping up and down about that prospect, because they've been fooled before, but in time it will happen.

It is not a convincing explanation to say sterling has been strong because of high interest rates. If that was the case, the pound would have been the world's super-currency for the past three decades. Britain's improved relative economic performance has helped - the best combined record on inflation and GDP per capita in the G7 over the period 1997-2006 - as, related to this, has Bank independence. Most importantly, the UK has attracted long-term capital flows, which reflect much more that interest rates, to offset the current account deficit.

Posted by David Smith at January 21, 2008 09:22 AM

"I know there's a lot of emotion attached to this subject but just try and think about logically."

Okay, let us know when you're ready to start....

"..debt isn't wealth but the excess of asset values over the debt taken on to acquire it is."

So how exactly do you access this 'excess' without borrowing?

You need to get out more and see whats happening to property in the real world - its a bloodbath. But dont let the facts get in the way of a good story, eh David?

Posted by contradictifier at January 21, 2008 09:37 AM

Come again? Yes, the vast majority of people take out mortgages to buy houses. They always have and they always will.

Posted by David Smith at January 21, 2008 09:47 AM

So we get wealthier by borrowing money against the value of an asset do we? Sorry - and you fancy yourself as some sort of economics expert?

A rising housing market, BY DEFINITION, requires increased lending. The only people who win from a rising housing market are the banks and people at the top of property chains who downsize and actually do 'release equity'.

The money that the person at a top of property chain walks away with consists of:
the price paid for the property at the bottom of the chain (usually 95% of which is borrowed money) plus the difference in prices between all the properties in the chain (again almost always funded by additional borrowing i.e. people taking in larger mortgages).

So someone selling a house for 600k walks away with 600k that has been borrowed by other people and passed up the chain to him. 'People' in general must be mad. Living a lifetime of servicing massive mortgage debts in the hope that they too will one day walk away with a big payday.

The housing market proves two things:
That people have very little hope in this life of ever saving any money for themselves.
That people are incredibly stupid.

Posted by Mike Wilson at January 21, 2008 09:48 AM

Oh dear, the quality of the contributions has suddenly slumped with the last couple. Have a look at the previous posts, try and understand some of the numbers, then come back.

Posted by David Smith at January 21, 2008 09:52 AM

David, Just reading through all these comments and the only emotional person seems to be you. I have finally stopped reading the Sunday Times after 20 years because you are peddling such incoherent and blatant denial propaganda about the economy. Are you a friend of Gordon's perhaps? Si.

Posted by Simon at January 21, 2008 10:05 AM

And another one. No economy is perfect, and certainly not this one, but surely even somebody with no grasp of economics must accept that the record over the past 15 years - starting before Gordon Brown - has been much better than for a very long time. If not, perhaps somebody could suggest a better 15-year period.

Posted by David Smith at January 21, 2008 10:15 AM

Brown's 10-year record consists of squandering money for the first 5 years and borrowing money for the next 5 and squandering that also. So while the times may have seemed good, the end result is, frankly, an awful mess.

Posted by Piers Ponsenby-Smythe at January 21, 2008 10:21 AM

Hi David. Kev M was right to say that your valuation of the entire UK housing stock is misleading. Something is worth what someone else is prepared to pay for it, and if you put it all on the market at once there's no way it would fetch the aggregate figure. So I think you are a little complacent about the disparity between debt and "value".

It's also worth pointing out that there are people who own their property outright, and that the debt to "value" ratio thus minimises the extent to which some people are in hock up to their eyeballs.

Given that property valuation depends to some degree on confidence, quite a small deterioration in that value, brought about by rising unemployment or more expensive credit, say, could have a significant impact on confidence, and therefore again on value. During the course of any such circularity, the debt would of course remain the same.

I must correct you on your first "daft" argument, the one about not being able to access your gains without getting out of the market. You say that "that is true of any asset". Yes and no. Take gold for example. You can't sell your ingots without getting out of the gold market; but since you only bought them as an investment, that doesn't matter.

Actually you have misstated the argument, perhaps to make it look dafter. The point is not that you can't access your gains without getting out of the market, it is that you can't access them without getting out of your house. To that extent gains in the housing market are different from those in other assets.

Yes, I could withdraw equity by way of a loan; but since the object of most of us is to pay off our loans by retirement, the only upshot of MEWing our way to prosperity is the discovery at 60 that we no longer have the income to sustain our loans and must sell our house to repay them.

My house is worth three times what I paid for it in 1998, but since I can't afford the extra money I'd need to move somewhere bigger, or nicer, I have to say that I don't feel any better off.

Posted by bears all at January 21, 2008 10:23 AM

An economy based on hyper-inflated house prices with the help of inflation-friendly CPI figures, I think you'll find.
Any capitalist economy must endure cycles. We've had the boom, it's time for the bust. Or is it really 'different this time?'

Posted by red at January 21, 2008 10:24 AM

The only bubble greater than the credit bubble we have witnessed over the last decades is actually the wealth illusion bubble.

Between 1997 and 2007 both the value of mortgage debt and the value of housing stock has risen 3 fold.

But the value of the housing stock is roughly 3.3 times the vlaue of mortgage debt right now.

This means that for every £ of additional credit that has gone into the housing market, an extra £3.30 of wealth illusion has been created. If credit becomes constrained by lack of bank capital, expect the wealth illusion to disappear.

As Mervyn said 'debt is real, house prices are a matter of opinion'. As house prices fall (the latest figures from the Halifax showing a 6.3% fall in London was a shocker), borrowers will be left with a very nasty hangover. And to your surprising confidence in this as a support for the pound going forward, I'll think you will be rueing that article.

Posted by harry e at January 21, 2008 10:43 AM

I didn't respond to the point about putting the housing stock on the market at the same time because, short of everybody moving to France, the population has to live somewhere. And, as I said in the piece, the argument stands if the housing stock is worth £3 trillion. All wealth is only as good as its current market price and housing is no different to anything else.
It is a fair point about the non-mortgaged portion of the housing stock. But it is not the case, as a simple fact, that you have to get out of the market to access equity, though as I keep saying, the reason people tend to do it this way is so that they hang on to future equity gains. But the wealth is there. If you, Bears All, wanted to access it without borrowing, and you don't have a big enough garden to sell-off (I don't either), you could simply trade down.
Piers Ponsenby-Smythe (can that possibly be a real name) has recent history a bit wrong. We had Gordon Brown's first 2-3 prudent years, then the big spending increases - the splurge - that are only now coming to an end.

Posted by David Smith at January 21, 2008 10:51 AM

Im with you Dave. The majority of these posters are from House Price Crash. They desperatly need the market down and have an almost religious fervour. They are coming over as a bit childish as usual.

But I thank them. Because this little thread really highlights that there will be no crash

Posted by Survivor at January 21, 2008 11:00 AM

Why do you think the stock markets all over the world have been plummeting and everyone is panicking? Do you know something they don't?

Posted by Jimmy Mac at January 21, 2008 11:09 AM

2007 was a classic blow-off top for the housing market. Big divergence between advertised house prices -- window dressing by estate agents -- and actual sale prices. They saw this coming from a mile off. Remember, no-one likes to buy in a falling market because the risk is clearly on the downside, so they had to keep the illusion going for just a little bit longer to allow the last of the smart money to exit.

Those are very wise words from Mervyn King and everyone had better pay attention to them.

Posted by Mark at January 21, 2008 11:10 AM

So as well as buying into the nonsensical idea that high house prices are good, you've also bought into the idea that we have had 15 good years.

The 48 successive quarters of growth have been against a backdrop of:
the emergence of China as the world's provider of £20 DVD players
50 year low interest rates post 9/11
the doubling of taxation since 1997 (the government's tax receipts are now more than double 1997)
a doubling of consumer debt from 650 billion to 1.34 trillion

Hmm - what a genius Brown was as a chancellor. How can I get growth in the economy. Stealth taxes and public spending along with consumer spending fuelled by debt. What a recipe! It is a recipe for disaster, sooner or later, and it looks as though we are now going to pay the price.

I wonder if you could answer a very simple question? A 3 bed semi in an Outler London suburb is now about 350k.

Assuming no more house price inflation, an an 18 year leaving school today - apart from whatever money they save towards a deposit for their first property - will basically need to borrow 350,000 to ever own a 3 bed semi.

How does that work?

Posted by Mike Wilson at January 21, 2008 11:14 AM

"Assuming no more house price inflation, an an 18 year leaving school today - apart from whatever money they save towards a deposit for their first property - will basically need to borrow 350,000 to ever own a 3 bed semi.

How does that work?"

Allow me David.

Well, he will have to earn well, and save. people with 3 bed semis didnt get born with them. Get yourself a flat first and then save.

Owning a 3 bed semi isnt the 'right' of every individual. Where do you House Price Crashers get that idea from? In history the wealthy and powerfull owned the land and the plebs rented.

Or worked hard all thier lives to afford a hut.

Posted by Survivor at January 21, 2008 11:25 AM


What you are singly and uniquely failing to grasp is that house prices are (more specifically house price inflation is) a function of available credit.

With the financial world taking a pounding, monolines about to tank, stock markets getting hammered and credit contracting, it doesnt take a genius to figure out what way this is going.

It really is that simple.

Posted by contradictifier at January 21, 2008 11:30 AM


Yes, I did wonder why you were calling my comments kinky. I was wondering whether I had inadvertently said something I shouldn't have, or perhaps whether economists have a strange idea about what is kinky.

Of course, I realise that there are short and long term effects. However, you didn't contrast these things in your original article:

You said: ""When sterling is strong the effects are mainly beneficial, certainly for consumers and tourists. Even exporters do not complain too much."

No mention of the short term there. You later mentioned a gradual rebalancing of the trade deficit as a longer term benefit of a weaker currency (not a new or controversial view).

I can assure you that exporters were very unhappy about the strong pound a year ago. Those companies who also had strong domestic sales didn't do too badly due to the boom in domestic demand, but from the point of view of exports, it caused major concern. I am very surprised that you think otherwise.

My point about the trade weighted sterling value being more important than the dollar rate is also valid whether we are talking about the long or the short term. I don't think your argument on this holds any water at all.

As for my point about interest rates, I believe it is valid. Perhaps I should have said "interest rates relative to the inflation rate" (as opposed to just mentioning interest rates) - i.e. the real return you get on your money. This unquestionably is a major effect on currency levels over the longer term.

Posted by HJHJ at January 21, 2008 11:35 AM

are you a BTL landlord about to lose millions on your leveraged bets on the housing market :o)

Posted by Jimmy Mac at January 21, 2008 11:38 AM

David, you're right that I could access my housing wealth by trading down. But I am at the stage in my life where my children are growing into teenagers, and if anything I need more not less room. I can't afford to buy any more space because the trading-up differential is too great. Thus in practical terms, my housing wealth is locked in and I won't be able to get it till my kids leave home. Even then I'll want a house big enough for them and their families to come and stay in, so it may well be that I'll never get my hands on it at all, and it'll be passed on to them as I'm carried out in a box.

To refine my earlier formulation then, you can't access your gains without painfully reducing your housing consumption. And wealth you can't realistically get at isn't wealth at all.

As for my kids, yep, they may get their hands on the money, but what will their own housing costs be at that stage, and what help will my measly few grand be then?

Re Brown's miraculous economy, we have had 10 or 15 years of unsustainable growth. Unsustainable because it's been built on government and consumer spending which we cannot afford (see budget deficit), and a socially divisive and environmentally disastrous open-door immigration policy keeping wage inflation low and thus enabling consistent growth. We are a small overcrowded island without significant natural resources living beyond our means. We have had the boom; now we'll see how bad the bust is going to be.

Posted by bears all at January 21, 2008 11:44 AM

David - Harry E re-iterated my point about the amount of (fictitious) capital created when one pound of new credit is injected into the housing market. No on-target answer yet from you!

This is the crux of the argument over the UK's net asset position. It would be great if you could provide some real facts on this. What is the consensus view among economists? How much new equity is created through the addition of each credit-pound that flows into the housing market? If it's one to one, then hats off to you; your frequent reference to the net asset cushion are then well justified. If, however, it is two-to-one, your argument weakens to the point of breaking. If it's three to one, you're sunk, because a drastic down-turn in new credit creation (and we are seeing the signs of it now) will destroy the net asset cushion and leave us on that hard bench with only a little kinkiness to ameliorate are sorrows.

Some facts, and a stab at the at the equation describing the link between asset inflation and credit credit creation in the housing market would help draw a line under this discussion (Costas, if you are around, can you help??)

Many thanks

Posted by T Gumbrell at January 21, 2008 11:47 AM

stock markets really are falling rapidly today all over the wrold. FTSE down 5%, DAX down 5.5%

David, I think you are going to have to revise your rosy economic outlook :o)

Posted by Jimmy Mac at January 21, 2008 11:59 AM

Someone called Survivor said in response to my simple question ... How will an 18 year old now ever afford a 350k 3 bed semi in an Outer London suburb? ...

Well, he will have to earn well, and save. people with 3 bed semis didnt get born with them. Get yourself a flat first and then save.

How much will he have to earn and save if people want some sort of vaguely reasonable quality of life? I would say that to basically fund the 350k mortgage he will need he would want to be earning about 80k to be vaguely comfortable - even at what are still historically low interest rates.

People with 3 bed semis weren't born with them. No INDEED! They bought them when they were 10k or 20k or 70k or even 150k and then watched in wonder as they went up - without any help from them - to 350k. For an 18 year old today - something that was reasonably affordable for his grandfather and father to buy - is now, more or less, completely unaffordable.

I fail to understand how people think this is sustainable.

Finally the responder said 'Get a flat and save'. How does that work? No really - please explain how that works.

Let's pretend there is no more house price inflation.

Buy a flat when the 18 year old reaches 25 years old for 200k - say with 190k mortgage (ouch!). Pay large mortgage payments (still at historically low interest rates) not allowing most people to save any real amounts of money. Wait 5 years and move up to a 2 bed terrace at 275k. Haven't been able to save because of high mortgage payments. Now need a 275k mortgage as there is 8k of stamp duty to pay plus estate agents fees to sell the flat and solicitors fees. Let's say a round 10k in total (basically wiping out the 10k put in originally to buy the flat as a first time buyer). Wait 5 years and decide to move up to 3 bed semi for 350k. Buyer is now 35 but now needs a 350k (well about 365k really allowing for stamp duty etc again) mortgage.

Buyer needs to be in the top 5% or earners in the country to afford one.

The responder is under the illusion that someone housing wealth just grows. It doesn't. It is funded by debt.

Now, if you put some house price inflation into the picture, the 350k 3 bed semi might be worth 500k by the time the person buys it - but, no matter which way you chew the figures, they will need a larger mortgage than they would have done if there had been no house price inflation. They might need, 400k to buy that 500k semi! Aha! There is the 'wealth'. The equity! Yes indeed! There it is. A hundred k that person would never have had if they hadn'dt bought a flat and moved up the ladder.

But look at the costs! Quite literally crippling mortgage payments only affordable by very high earners.

That is why this cannot go on.

Posted by Mike Wildon at January 21, 2008 12:17 PM

HJ, as I say, in the first half of the year manufacturers' orders were at their highest since the mid-1990s, including export orders. Perhaps not surprising, given the strength of the global economy.

I can't understand this strange obsession with the idea that the value of housing should only have risen in line with the mortgage debt taken out to buy it. If that had been the case, you really would be worried, and it would be the case that it had been entirely due to debt. The value of housing, as I said in the piece, reflects past increases in income and employment and future prospects, supply constraints, and, as I said earlier in this discussion, the fact that we have moved to a lower sustainable level of interest rates. There is no mystery about this - you can debate how much the rise in prices should have exceeded the debt taken out to acquire it but the fact that it has done so should be no surprise. That has been the case throughout history.

The fall in share prices we are seeing today is dramatic and will reinforce the forces slowing the advanced economies and the wider global economy that I expect and have been writing about for some time It may, however, also mean deeper rate cuts.

Posted by David Smith at January 21, 2008 12:36 PM


Two questions:

Banking stocks are down due to the fear of more write-downs after Ambac and MBIA were downgraded. What does this mean for the future of mortgage lending?

Base metals have plunged this morning. Does this portend a recession?

Posted by Mark at January 21, 2008 12:55 PM

To pursue this line re Gordon Brown a little further, his mistake lay in thinking that there really would be no "return to boom and bust". Experience shows that "events" beyond HMG's control always impinge on an economy, no matter how well run. Look at the credit crunch and today's equity plunge for examples. A prudent government anticipates these possibilities, whereas NuLab have proceeded on the basis that nothing would disturb the even tenor of Brownian growth. As a result the UK is in a much worse position to meet the consequences of, say, a US-led recession that it need have been, simply because HMG has borrowed so much during the up-cycle.

Posted by bears all at January 21, 2008 01:03 PM

Still waiting to find out how an 18 year old leaving school today is ever going to afford to buy one of the hundreds of thousands of 3 bed semis in the Outer London suburbs.

Or how 18 year olds in the West Country are ever going to be able to afford a home?

Or how 18 year olds anywhere in the South of England are ever going to be able to afford a home?

The market was driven higher and higher in a classic asset bubble manner by buy to let investors replacing first time buyers. As long as capital growth was to be had, it didn't matter if the rent didn't cover the mortgage. Now we have capital values falling. The only BTL investment that will be bought in the present climate is one where the rent covers the mortgage. Lots of them about eh?

No one seems willing to take up the baton and explain.

No matter which way you cut it - an 18 year old now - assuming no house price inflation - will need a 350k mortgage to buy a 350k Outer London 3 bed semi.

Throw in some house price inflation, and they'll need an even bigger mortgage - limiting 3 bed semi ownership - in 20 years time - to eccentric dwarf millionaires that don't like big houses.

Posted by Mike Wilson at January 21, 2008 01:22 PM

Nobody believes house prices could or should rise at the exceptional rate of recent years. The norm one would expect is average earnings plus a certain amount for supply constraints but recent years have been exceptional, mainly because of the shift in the interest rate environment. But the idea that it is every 18 year-old's right to buy a three-bed semi, and that was what his father and grandfather did, is just ridiculous.

I think it is fair to say that the boom-bust cycle of the past has not been present for these 15 years; 62 consecutive quarters of growth, but there has still been a cycle. And I agree that the public finances should not be in the state they are. Whether this leaves the economy as a whole vulnerable can be debate, but it plainly leaves the fiscal rules vulnerable.

Metals prices were quite weak for much of last year. Oil is going to be quite interesting.

Posted by David Smith at January 21, 2008 01:26 PM

Mke Wilson, what is your OBSESSION with 18 year olds buying 3 bed semis?

Maybe they wil go to university, get a well paid job, live with their parents till 23/24 and buy a 200k flat with a 180k mortgage and a small deposit.

Or maybe meet a nice girl (or boy) and club together their 80k+ a year salaries to buy a nice little cottage.

Maybe their parents or grandparents will die and leave them a £1.5m house to sell, split between the 4 grandchildren and then they all have a £375k house, mortgage free.

How about that ??

Or maybe it is not their birthright to get a 300k house without working their butts off to earn it.

Posted by Simon at January 21, 2008 01:45 PM

Mike Wilson -

Simon has a good point!

18 year olds neither need or are entitled to 3 bed semis. I am 23, went to Uni, saved some money from my first job, bought a flat which needed some work, renovated it, and am now closer to buying a magical 3 bed semi! Anecdotal evidence from parents etc suggests that few 18 year olds were able to get straight onto the property ladder, at whatever the level.

I spent a long time saving hard and wathcing prices rise, now they may fall, but I'm not moaning about it.

Posted by Will Matthews at January 21, 2008 01:58 PM

This is the result of the bursting of a huge global credit bubble (which cause huge overinflation of assets such as houses). I expect there will now be quite strong global deflationary pressures and a severe recession or possible worse.

As Paul Krugman said, we have innovated ourselves into a crisis.

Posted by Jimmy Mac at January 21, 2008 05:23 PM


You say:" HJ, as I say, in the first half of the year manufacturers' orders were at their highest since the mid-1990s, including export orders. Perhaps not surprising, given the strength of the global economy."

Here's my opportunity to point out that you're not grasping something. If you're correct, the fact that in the first half of the year, export orders were at their highest since the mid-90s proves only that we have gone for over a decade without orders rising, which rather illustrates my point about the effect of the high pound. Can you point to another industrialised country where export orders have only just exceeded their 1990s level or where this would be interpreted as a good performance? Or did you mean that they *grew* faster than at any time since the mid 1990s?

If the latter, it tells you nothing about the absolute level. If the former, it's a poor export performance.

Posted by HJHJ at January 21, 2008 05:35 PM

Hmmm, you don't understand these numbers do you? Survey measures of export orders and other magnitudes are recorded in "balances" - up versus down. So on this basis the CBI said export orders were at their strongest since the mid-1990s. Of course exports have gone up since the mid-1990s - the volume of manufacturing exports has almost doubled over the period.

Posted by David Smith at January 21, 2008 05:44 PM

So, what do you think is going to happen to these exports now that the markets are pricing in a global recession?

Posted by Jimmy Mac at January 21, 2008 05:58 PM

Interesting. I can't remember which blogger here said that the BOE could just print enough money to prevent the UK having credit crunch problems...

Well the financial hot money isn't for it...

Posted by Pete Balchin, Solicitor at January 21, 2008 08:01 PM

The markets may turn out to be wrong, but they are predicting armaggedon, so you are holding back the tides of mulitituinous opinion now David,a nd not vice versa.

UK house builders trading on PEs of 4. Market is saying this is the big one - property crash. Rightmove report prices in greater London fell by over 6% last quarter. That's 24% nominal, nearly 30% real on an annualised basis. Mortgage approvals falling very rapidly. Halifiax etc will have to come clean soon or later. When they do, the party will really start.

Sterling is weakening by the day (apart from against USD, because that's stuffed as well), and there's surely more to come.

Northern Rock nationalised in all but name.

Gold and silver prices indicating extreme turbulence ahead.

Producer inflation at 5%, RPI ar 4%. Bank must drop all pretence of fighting inflation to cut.

Current account deficit nasty now, but set to get much much worse (and that's excluding the shadow deficit that's off BS, including the Rock nationalisation). Government can only provide fiscal stimulous thorugh dropping golden rule or by rising to new levels of mendacity. I wonder which it will choose??

FTSE drops most since 9/11. Equities markets appear to be entering sustained bear market. If commodities don't tank (and I for one am betting that they will not, and betting with real money, so I've got my fingers tightly crossed), then when the central banks try to reflate the bubble they will be setting the scene this time for possible real stagflation. The western world sits uncomfortably between massive asset price deflation and stagflation. The middle course is oh so tricky. Reefs abound and this is no place to get wrecked.

'Asset prices are a matter of opinion, whereas debt is real" (M.King). Well, it's time to find out about that opinion now. The scene is set. The curtain is drawn. Time for some dramatics, and we can be sure that most of them will be of the ameteur variety, especially where the management of this fantasy economy is concerned.

Welcome to your harvest Gordon. May you reap what you have sown.

Posted by T Gumbrell at January 21, 2008 10:26 PM

Oh T Gumbrell, just as I start to think you may be talking sense, you go and spoil it. Whatever's happening to house prices, don't take any notice of the hugely distorted, unadjusted Rightmove index, which has been badly affected by Hips. Unless, of course, you really believe house prices in Wandsworth rose by 5.5% last month and by 3.6% in Greater London. Something has also gone wrong with the Halifax's regional index, which I suspect is also Hips-related. I simply do not believe prices fell by 6.1% in the final quarter in Greater London while rising by 2.1% in the West Midlands.

You don't follow the markets very closely, it seems, or you'd know that sterling is up against the euro in recent days, but has been slipping against the dollar.

Gold and silver have been falling recently, not rising, As for the stock market rout, interesting that it was more extreme in Germany and France than the UK. But we'll see how long it lasts, and whether it will mean deeper rate cuts. One thing's clear, inflation worries are fast evaporating.

And please stop quoting Mervyn King's one-liner about debt and asset prices, or else I'll be obliged to quote some of his other bon mots back to you, like his observation on August 8 that there was no international financial crisis. Or his November advice to Gisele Bundchen to be paid in that most stable of currencies, sterling. It may come as a shock to you, but Mervyn isn't always right.

Posted by David Smith at January 21, 2008 10:49 PM

David, thanks for your detailed response. I was however referring to the general trends in Sterling (ouch), and precious metals (yipee), not the inevitible ups and downs of of the past couple of days. Generally speaking, Sterling is under attack and precious metals are going to the moon. Gold is very volaitle, and we should not be surprised to see 700 again before we see 1200. Sterling will have its perky moments, but the trend is troubling and likely to continue.

Re the DAX - it's gone up more, and so it's suffered a more serious correction, so perhaps as simple as that. But, the disproportionate hit to European stocks might have happened because the ECB is viewed as a real inflation flighter, whereas the markets are less convinced now about the banks credentials, and are therfore expecting deeper cuts in the UK.

You say that inflation worries are wilting. That's simply because it is expected that recession will put downward pressure on prices, which of course it will (in some areas), but what if commodities continue their rise. What if the chinese export more and more of their 6% inflation?

I will desist from quoting MK as requested. That's a fair request.

Posted by T Gumbrell at January 22, 2008 12:16 AM


I'm sorry but in this instance it was clearly you who didn't understand, or at least incorrectly described, the figures.

As I suspected - and I said as much - when you referred to export orders being at their highest, you weren't actually referring to the level of export orders, you were referring to the rate of growth (which is a different thing entirely) being the highest since the mid-1990s. The rate of growth and the absolute level are very different things - and I've noticed exactly how often economic commentators seem to confuse the two (which is exactly what you did in your earlier post). You should have been more precise rather than accusing me of not understanding,

In any case, if the rate of growth in the first half of the year was the highest since the mid 1990s, this doesn't, in itself, provide evidence for anything. All it tells you is that in the intervening 10 years (or so) growth has not been as high as it was then or is now. That could mean that it was very high in the mid-90s and is very high now or, conversely, it has been low in between. You'd have to provide some other basis for comparison for your statement to illustrate anything. It certainly doesn't illustrate that the level of the pound hasn't been, or isn't, a problem for exporters.

Posted by HJHJ at January 22, 2008 11:45 AM

Give it up HJ. We don't report survey balances as rates of growth because they aren't. Of course exporters would have loved to have had a weaker pound and I don't doubt that taking the period as a whole export growth would have been stronger. But the fact is that export volumes have grown in spite of sterling's strength, and the fact also is that when the sterling index was at a 26-year high, export orders, measured by survey balances, were at their strongest since the mid-1990s.

Posted by David Smith at January 22, 2008 12:29 PM


I think I will give it up, but not before I have one last go.

You now state that "Export orders, measured by survey balances, were at their strongest since the mid-1990s"

Earlier you said that "manufacturers' orders were at their highest since the mid-1990s, including export orders"

These are not the same thing because survey balances (i.e the difference between the number of firms reporting increases vs decreases) are NOT - and cannot be taken as - a measure of the level of export orders. A survey balance simply doesn't tell you this. Neither can a single survey balance figure tell you a trend - you need several to illustrate a trend.

The BoE web site has an explanation of this. Essentially it says "Balance surveys are useful, but not to be confused with hard data".

You did not originally say that you were using survey balances as the basis for your statement about export levels, so, not unreasonably, I assumed that you were indeed, referring to absolute levels or (as I said), rates of growth, as survey balances simply can't be used to back up your statement - and to do so is a mistake.

The BoE explains this in the section of their website where it says (referring to balance surveys) that "most do not provide hard data".

Don't get cross. I am not an economist and I don't always know, or know where to find, data or always understand economists jargon. However, on this, I think you have to concede my point.

Posted by HJHJ at January 22, 2008 03:55 PM

OK HJ. Point accepted.

Posted by David Smith at January 23, 2008 06:27 PM

"As for the numbers, mortgage debt has risen by roughly £750 billion over the past 10 years while the value of the housing stock has risen by more than £2.6 billion. The rise in housing equity has thus been very considerable. Mortgage debt, incidentally, is likely to continue rising, including this year, but at a slower rate."

- David Smith

"Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available."

- George Soros

Posted by Top Cat at January 24, 2008 06:57 AM

Don't get me started on George Soros.

Posted by David Smith at January 24, 2008 08:57 AM


If I may make one more comment (at the risk of you getting totally fed up with me).

The majority of our exports are for manufactured goods, I believe. The market for manufactured goods (especially) has become (and is still becoming) more globalised. Therefore, even if manufacturing output in the UK (or indeed, the world) were flat, you would expect import/export levels to be increasing. This, in fact, is what has been happening. Manufacturing output in the UK is now pretty much stable, increasing only a whisker since 2003, but export orders have increased.

My point is that even if UK export orders are increasing, this does not tell you that the level of the pound is not a major problem, because import penetration has increased faster and so this suggests that domestic manufacturers have not been able to compete well. So perhaps manufacturing output performance compared to either similar countries or to the rest of the world is a better measure (although not a complete one) of whether the level of the pound is, or has been, a problem. In this respect the facts are clear - the UK has had by far the worst manufacturing and industrial output figures of any G8 country over the last decade.

I'd say that this is pretty strong evidence of the pound being overvalued.

Posted by HJHJ at January 24, 2008 10:07 AM

Irritated, but not yet totally fed up. I think, however, you need to check some of your claims. Britain's export performance has been stronger than Italy or, excluding oil and gas, Russia, both G8 members. Finished manufactures account for about a third of exports of goods and services, manufactures and semi-manufactures together about half. Studies that have been done suggest that price, and therefore the exchange rate, has a relatively minor impact on export performance. I've never denied that there is an effect, and I've written it on a number of occasions, but the problems of UK manufacturing go a little deeper than that. For comparison look at the performance of German manufacturers, who appear to succeed whether the euro (or the D-mark before it) is weak or strong.

Posted by David Smith at January 24, 2008 10:52 AM


I said "the UK has had by far the worst manufacturing and industrial output figures of any G8 country over the last decade." This is correct. I did not say that it had the worst export performance, so the fact that Italy's export performance has been worse doesn't invalidate what I said. Exports can grow even if production is flat. The better question, if you're considering ability to compete, is whose trade deficit/surplus has worsened most.

You're right - manufactures and semi-manufactures account for about 52% of exports. Add in a some food and a bit of the miscellany (some of which will be 'manufactured') and I'd call this "a majority", so why do I need to check this claim?

However, I'd agree with you that the problems of UK manufacturing go deeper than the exchange rate. For example, Gordon Brown's employers NI hike can't have helped and there are lots of other small factors that add up. Another is that we seem to need higher interest rates to maintain the same level of inflation as many other countries - this can't help capital investment (quite apart from its effect on the exchange rate).

Your point about German industry and the level of the D-Mark or Euro is a good one. However, I started travelling to Germany to do business in the era of the supposedly strong Mark and it always struck me how thing appeared to be cheaper there. I'm not sure the D-Mark really was that strong - more like stable (which was, of course, a major plus point for exporters).

Posted by HJHJ at January 28, 2008 12:33 PM


I cannot agree with the popular conception of what happened on "Black Wednesday" and the idea that a weak currency would be good for UK. Having lived in France for the last twenty years, perhaps I see things from a different angle. Like many people who depend on pensions which are denoted in sterling, we are always concerned when commentators in the media talk about the pound being too strong. It was perhaps a mistake for the UK Government to use the German currency as a yardstick . Germany was already feeling the strain of absorbing the Eastern part of their country and their post war economic success was perhaps already leveling off. From my own viewpoint, I was naturally more concerned with the exchange rate between the pound and the franc which at that time was approximately ten to one. After the fiasco with the hedge funds and the withdrawal from the ERM the rate dropped to seven. In a simple layman's terms the pound had fallen to seventy pence in value. This was hailed , retrospectively , as the salvation of British industry. The producers had a massive discount to offer their customers and they paid their workers with seventy penny pounds. The critics of the European Common Currency said that the UK economy was weak and that sterling was overvalued. Mr.Major ,I recall, said that there was nothing wrong with the economy.If he was right then theoretically sterling should, like a spirit level, have returned to ten francs which is what it eventually did. Up until very recently the current rate was about 68 pence to the euro which is the equivalent of 9.65 francs. (the franc having been pegged at 6.66 to the euro.)

In the period immediately preceding the issuance of the new currency the common consensus of opinion in the continental countries seemed very positive, and I have not spoken to anyone of late who would wish to return to multiple currencies. In fact in retrospect, it now seems absurd to imagine the European Union achieving its full economic potential if everyone started printing their own money. Would the United States see an advantage if the individual states reverted to separate currencies. I feel certain that if they did they would have done it by now.
I remember the difficulties we experienced after the war in trying to cope with the loss of Empire. It was often said that what UK needed was a domestic market, large enough to allow manufacturers to reach their output breakeven point at the earliest possible stage, and the advent of the Common Market provided the solution. The concept of the new Euromarket was for cooperation, not infighting between states, and the required regulation to prevent "cherry pickers" was provided by the legislative structure in Bruxelles and of course, the European parliament. I feel that it is time for England to come in from the cold and join the rest of us without delay. Playing politics with the interest rates won't solve long term domestic problems, such as a housing shortage, but being an integral part of a large international economic unit might help.

Peter Vicary. Ste.Innocence.France

Posted by Peter Vicary at January 29, 2008 11:20 AM

Peter, I disagree with you fundamentally about UK euro membership, which I think would have done both the UK and the euro a great deal of harm.

HJ, reliable figures for Russia are hard to come by but the data I have for manufacturing output for Italy suggests it has done worse than the UK over the past decade. I suspect Russian manufacturing has too, though I can't back that up with data. Perhaps you could point me in the direction of your source.

Posted by David Smith at January 29, 2008 09:10 PM


I can't find the original source which I read about a year ago, but it did starkly contrast the UK with other G8 countries.

However, the following sites show figures for the UK and Italy:


It shows Italian Industrial production up 3.6% in Nov 2007 vs 2000 (despite a dreadful last 12 months).

On the ONS Site, you can see some figures from the UK:

This shows total production industries output every year since 1949 (2003=100). This shows output dropping from 103.8 in 2000 to 98.9 in 2006.

The manufacturing output index graph also shown on the ONS web site clearly shows output to be flat (or even a slight drop) since 2000:

Posted by HJHJ at January 30, 2008 12:24 PM

HJ - overall industrial production isn't much good, because it has been depressed recently by declining North Sea output. Manufacturing output is about 3% up on its 1997 level - pathetic but according to my figures, better than Italy, which has had much weaker overall economic growth over the period. As I say, I can't find good data for Russia.

Posted by David Smith at January 30, 2008 07:24 PM


What are your figures for Italian manufacturing output? I did give links for both production output and manufacturing output for the UK as I knew they weren't the same thing. However, I could only find production figures for Italy.

I suppose it also depends on your year of reference for the UK. As I understand it, the (as you say, pathetic) rise in UK manufacturing output since 1997 all occurred in 1997-2000 (I think it has shrunk a little since then). The 1997-2000 figures were really just a continuation of the trend that Labour inherited. It was after this that New Labour policies kicked in, largely due to Brown abandoning the Tory spending plans that he had stuck to for his first two years as chancellor.

Posted by HJHJ at January 31, 2008 09:29 AM

Here's a series on Italian manufacturing output from Economagic. It ends in 2006, which is a pain, though the latest figures suggest a fall of roughly 2% over the past 12 months:

1995 109.1
1996 107.8
1997 109.6
1998 109.9
1999 109.6
2000 112.9
2001 111.8
2002 110.4
2003 107.8
2004 106.4
2005 103.7
2006 107.6

This is a series for Russian industrial production, running from 1995 to 2006. I think this series includes energy output: 95 92 101 95 109 109 103 103 109 108 104 104

Posted by David Smith at February 1, 2008 04:52 PM


I had a look over at Economagic. The figures for Italy are interesting but they don't reference their source and there are no such figures on the official Italian statistics web site.

I have a couple of reasons for doubting their accuracy. First, they are in contrast to overall Italian production figures. Whilst I realise that manufacturing output and production output are different things, they tend not to head in different directions to the extent that these figures do. Secondly, the Economagic figures show one year in the early nineties where engineering output jumped about 7% in one year - a figure I find unlikely.

Posted by HJHJ at February 7, 2008 09:21 AM

High house prices = bad and here's why...

Which is easier to pay off a £50k 3 bed semi at 8% or a £150k one at 4%.

The first one I paid off but I couldn't even imagine paying off the last one.

The problem is that interest rates have been too low and everyone, except maybe the BOE, knows low interest rates = high price inflation! Wpuld have also helped if the goverment measured inflation correctly!

So the next time someone calls for interest rates to be dropped explain it to them that they are wrong!

Posted by San at April 4, 2008 01:53 AM