Q: How many economists does it take to change a light bulb?
A: Seven, plus or minus 10.
It’s an old joke and perhaps a variation on a thousand other versions of this joke, but I’m sure you’ll catch my drift. Economists tend to have lots of opinions about what has happened in the economy, and what might be about to happen, and if those opinions about what the future will bring, turn out to be wrong, then they’re happy to revise previous statements to fit the brief, shall we say.
That’s not just my view, but also the view of David Smith, economics editor of The Sunday Times who presented to the recent Stonebridge Conference for member firms, for the second year running, and gave an illuminating and entertaining viewpoint on the UK economy, how it fits within the new world economic order, and what could happen throughout 2020 and beyond.
What I like about David’s presentations, is that he fully acknowledges that opinions (and predictions) can change regularly. Indeed, he was happy for the audience to ignore all his predictions from last year’s presentation that had not come to pass during the course of the last 12 months. In fact, he insisted on it.
The presentation was particularly interesting for housing and mortgage market stakeholders like ourselves and our audience, because in a number of ways it reaffirmed what many within the sector have been saying towards the end of last year and into this. That is, we’ve seen a notable increase in confidence around the market and this is translating into more properties coming to market, more buyers looking to purchase, and more existing homeowners looking at their refinance options.
We should perhaps not underestimate the result of the General Election in this, although our statistics also reveal that this was a short-term trend underway in the months leading up to the December election, as well as since. Our own completion results for December were uniformly excellent across our three core product areas, and therefore we believe the market upturn was set in train sometime before any ‘Boris Bounce’ might have kicked in.
Indeed, UK Finance’s mortgage approvals were already at a five-year high even before they’d digested the General Election results, while we’ve also seen a pick-up in house price inflation, with forecasts of growth at levels higher than we’ve seen for some time. The RICS market sentiment metric also shows a marked improvement, with (as stated above) more sellers as well as buyers, identified in its increase in new vendor instructions and a pick-up in newly-agreed sales.
However, what is the expectation for the year ahead? After all, there are any number of ‘big ticket’ issues which are likely to have their say on the direction of travel for the economy and our sector specifically. These include:
- A new Bank of England governor, Andrew Bailey, who David described as a ‘monetary policy pragmatist’ and unlikely to ‘showboat’.
- The Budget, which if we are to believe the hype, could present a rather radical series of measures, many of which might impact the housing market including a ‘Mansion Tax’, further changes to stamp duty, and a potential replacement for the Help to Buy Scheme.
- The ongoing trade talks between the UK and the EU as they move towards the end of year deadline to secure a deal.
- Interest rate speculation – with inflation well below target, there is some thought that Bank Base Rate (BBR) might soon be cut again, although mortgage product rates have been coming down regardless of the lack of changes to BBR. This has been a pattern evident since 2012, and even though margins are down significantly, lenders might still move in this direction in the quest to secure volume business.
All of this and more will clearly have a major impact on our marketplace, but (from our own perspective) we are very positive about 2020 for our intermediary firms, even with the FCA deciding that encouraging execution-only is a good direction of travel to pursue. We think otherwise.
Finally, you may have heard of one tongue-in-cheek economist’s measure of prosperity, which is counting the number of builders’ skips on the residential streets of Britain. Essentially, it posits that the number of skips in a road signals the strength of the housing market and the UK economy so no skips means we’re in recession, two skips signals we’re moving with the growth trend, and four skips is an unsustainable boom.
Perhaps count up the number on your road to get an idea of where we are in the current economic cycle? After, all, flimsier data than this has been used as a justification for economic policy in the past.
Rob Clifford is chief executive of Stonebridge