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A Vizeum view on the economy – September 2013


The UK economy is ‘turning a corner’ according to George Osborne, following the recent upgrade of Q2 GDP growth figures from 0.6% to 0.7%. Why has a mere 0.1% been enough to get the politicians and economists raving? The answer is clear when you compare growth rates vs other big economies around the world. In Q2 our growth rate exceeded that of the US, Germany, France and Russia! An impressive result and one which provides evidence that the economy is beginning to use that excess capacity and grow consistently.








August saw the new Governor of the Bank of England, Mark Carney, set out his forward guidance policy which placed employment and the unemployment figures at the centre of BoE policy. Whilst there are plenty of caveats linked to this policy, its aim is to provide stability to markets and boost consumer confidence. In addition it’s “a good thing” that such a visibly consumer-friendly aim of getting people into work has been placed alongside inflation as one of the key metrics to watch. The trigger point to seeing interest rates move for the first time since 2009 is 7% of the working population or c.2.2m at current levels something most analysts believe will happen sometime in 2015.

There has been much talk about house prices in the press recently with fears voiced of a new housing bubble. As mentioned last month, there is a fear that the government’s ‘help to buy’ scheme is fuelling a buy-to-let frenzy as opposed to helping the people that need homes and that when this is expanded to include all properties (not just new builds) this is only going to exacerbate the problem.








The sudden spike in actual house prices (see the Nationwide and Halifax graph) isn’t represented in the longer term trend for asking prices (shown by the rightmove data), however comparison of the two shows a fairly consistent gap. The “leading indicator”, asking prices, suggests that further increases in the future are to be expected. With little major house building projects being completed and BTL investors snapping up those properties that are there, housing supply is being squeezed and price rises are seemingly inevitable in the short term, with those who do own likely to feel better off as a consequence.








Looking at GFK confidence figures we begin to get a real picture of how people are thinking and feeling with the recent highest recorded absolute figure since 2009. These figures show a momentum despite people’s personal situation remaining unaltered since July.

This momentum also appears to be feeding though to purchase behaviour; with discretionary income also seeing some recovery, now could be the time to begin conversations about making that larger investment!










The Purchasing Managers’ Index (PMI) shows that confidence is soaring in the commercial world with the three core sectors seeing significant increases in activity, all of which bodes well for the economy. With internal confidence still relatively low, suggesting that it is exports which are currently driving the economy.









Given the evidence, there is little room to disagree with the Chancellor’s view of the economy, and indeed there is much to be positive about. The UK is performing comparatively well versus other global markets with exports being the key driver. Sustainable momentum seems to be emerging for households and commercial enterprises plus a sense that people are beginning to consider larger investments and luxury products. However, it is not all good news. The biggest worry from economy watchers is the housing market. Whilst it can be argued that defaults are less likely to occur with BTL investors than individuals, it could diminish the opportunity for individuals to own their own homes and consequently provoke feelings of dissatisfaction and resentment – emotions with which a consumer-led recovery are not normally associated.