Britain in Freefall as Economy, Housing Market and Labour Votes Crash

Politics / UK Economy Jul 25, 2008 - 05:56 PM GMT

Best Financial Markets Analysis Article Labour lost the Glasgow East by-election in the early hours of this morning which was the third safest Labour seat in Scotland.This was by far the worst election result in Labour's history and suggests a collapse in Labour's vote and thus puts Gordon Browns Premiership in the firing line, strongly suggesting an leadership challenge will occur this year possibly at Septembers party conference.

Following hard on the heels of the abysmal election result, the government (ONS) released GDP growth data for the second quarter today which gave hard evidence of an economy teetering on the brink of recession by registering GDP growth of only 0.2%, this follows the poor first quarter growth of 0.3% and thus GDP growth so far for the year stands at just 0.5%. This weakness is a far cry from economic forecasts of late last year that ranged between 2% and 2.5% for 2008, in the midst of which the Market Oracle forecast was for growth of between 1% and 1.3%, which is starting to look optimistic.

The third leg of Britain's freefall is the Crash in the UK housing market as forecast to occur starting April 08 by the Market Oracle in November 2007. The original expectation was for a crash at the rate of 5% per quarter, this has now been exceeded with house prices falling by more than 6% per quarter.

Recent analysis suggests the UK housing markets pace of decline should moderate by Septembers data towards a year end projected rate of decline of 11% as the below graphs illustrate.

UK House Price Crash and Projected Trend into End 2008

The annualised rate of economic growth fell from 2.3% to 1.6% for the second quarter, with now a strong risk of negative quarterly growth occurring this year. Therefore the economy is already teetering on the brink of an recession which implies that 2009 looks set to be far more painful than recent preliminary analysis suggested as the below graph illustrates.

Negative quarterly growth this year would be a seminal moment as the UK has not experienced a quarterly fall in GDP since 1992. Meanwhile the Bank of England is paralysed by the fear of inflation into inaction. The recent MPC minutes illustrated the paralysis in that the rate setting committee was split three ways, so we can expect little leadership from the Bank of England in the time of crisis. This only leaves fiscal policy as the means of saving the UK economy from a deep recession. However the price for which will be much higher inflation as the Government busts through its 40% Debt Golden rule , which recent analysis suggests that government debt could pass 60% of GDP during a 2009 recession.

UK GDP Growth Forecasts for 2008 made during later 2007.

Market Oracle 1% to 1.3% (Dec 07)
CBI 2% (Dec 07)
UK Treasury 2.15%, 2.5% for 2009 (Dec 07)
European Commission 2.2% for 2008 and 2.5% for 2009 (Dec 07)
Oxford Economics 2.3% (Dec 07)
OECD 2% (Dec 07)
International Monetary Fund 2.3% (Oct 07)
Capital Economics 2% (Dec 07)

Labour Vote Meltdown - Gordon Brown Leadership Challenge This Year

Gordon Browns Labour party is in crisis mode, time has effectively run out for Gordon Brown as the time for action to arrest the decline in Labour's electoral fortunes was more than 6 months ago, the same old offerings at press conferences no longer cuts it not only with the voters but also with Labour MP's who can clearly see that their jobs are now on the line. There now exists a high probability of a challenge to Gordon Browns premiership most probably at Septembers party conference. This also confirms the view that Labour will hang on for as long as possible into the deadline for a UK general election of May 2010.

However the voters have clearly indicated that 11 years in power is more than enough and that it is time for a change therefore a change in leadership is expected to make little difference to Labour's fortunes much as last years change from Tony Blair to Gordon Brown has just accelerated the degree to which Labour is seen as being out of touch with what the voters want, which is far greater competence in government spending on public sector services, a more equitable tax system and a Prime Minister with vision to lead Britain rather than to be led from one crisis to another.

By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

Clive Smith
31 Jul 08, 11:29

Housing decline to moderate?

"Recent analysis suggests the UK housing markets pace of decline should moderate by September’s data"

You did not explain your reasons for why you think the decline in UK housing value would moderate.

Mortgage lending has declined at an astonishing rate, consumer confidence is at its lowest point for decades and most first time buyers are out of the market, either due to fear or an inadequate deposit. Even if the government used taxpayer's money to try and kick start mortgage lending,

Too many people cannot afford their current commitments. As for the rest, stories in the news of a property crashes in the US, Ireland and Spain, must spell out what is in store for us. Sales are normally agreed weeks and months in advance, so there is a lag effect. In last months figures, what we see is sales that were completed then, but agreed to in say April or May. The housing reports in September, may be truly awful. For any other outcome would mean that people are rushing out this month and in June making offers on what they may see are bargains and mortgage leading increases dramatically.

Regards

Nadeem_Walayat
31 Jul 08, 15:11

House Prices

More here on prelimary analysis-

http://www.marketoracle.co.uk/Article5563.html

Which is on the basis of 20 years experience of trend analysis, that correctly called the exact peak in UK house prices as of August 07.

Look out for the analysis in the next few weeks that will map out house price trend into 2011.

NW.

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