A One of the main building blocks of economic activity is the dynamism of the private sector housing market. This is the view within the Treasury and nothing over the past 50 years – not the growing wealth gap, nor the risks that come with growing reliance on a volatile asset market – has come to shake it. this point of view.
After every recession, even when a real estate crash was the cause, No 11 officials dig into their stimulus toolbox and opt for a proven and reliable method of getting the economy back on its feet.
More crudely still, ministers are using the upward house price incentive to initiate what they really want to see, which is more deals.
This is why Rishi Sunak has responded to the pandemic by reducing the stamp duty on home purchases to zero for homes valued under £ 500,000. The effect can be seen in the latest Nationwide House Price figures, which show the UK average house price hit £ 252,687 in November, up 10% from the previous year.
Sunak’s mission was supported by high-profile lenders who cut their margins to the bone, with the help of ultra-low interest rates from the Bank of England, to maintain their market share.
This has helped move transactions forward and save a financial system that relies on mortgage sales, but at the cost of the same continued reliance on a mortgage-dependent financial system and a widening credit gap, from hardship. real estate wealth already gaping.
Some commentators expected the direction of travel for prices to moderate or even reverse. The Office for Budget Responsibility, the independent Treasury forecaster, predicted in October that house price growth would drop once the stamp duty subsidy was removed in the fall to just 0.5% in 2023.
It may be too early to call, but a 10% annualized increase in November would indicate that this forecast is in error and that the market has quickly adjusted to life without a subsidy.
Overall, speculative sellers – who could be private new build developers or individuals willing to sell at the right price – have pulled homes off the market to meet falling demand.
Sales were down 28% in October from the previous month and are expected to remain depressed in November and at least until the Covid threat has lifted.
This has to mean Sunak comes out of the pandemic with turbo-charged house price inflation without the deals that underpin a healthy housing market.
Accumulation of vaccines resulting in random and stop-start recovery
It is tragic that months of work by businesses and governments to triage global supply chains, an effort that was visibly progressing in the fall, be wiped out if Omicron turns out to be a vaccine-destroying strain of Covid-19.
Blockages at ports had eased and retailers expected to fill large numbers of empty shelves ahead of the Christmas rush. Now they are not so sure.
In its forecast for 2022, the Organization for Economic Co-operation and Development (OECD) says it cannot say how Omicron will affect the broader recovery.
This may indicate that some disruption in supply chains is likely, meaning shortages until next year. Inflation, which at 4.2% in the UK is already more than double the Bank of England’s 2% target, is expected to stay high longer, as are inflation rates in most countries. developed nations.
The Paris-based adviser to the 38 mostly wealthy countries said keeping the recovery strong and on track will involve addressing a number of imbalances, “but above all it will mean dealing with the health crisis through better international coordination, improvement of health systems and massive scale-up. immunization programs around the world ”.
This message is still not heard. Even from a selfish point of view, richer countries could have avoided another mutation in Covid-19 if more doses of vaccination were available in South Africa.
International coordination is supposed to take place at the World Trade Organization where this week delegates from the south of the world wanted rich countries to waive vaccine patents, forcing Pfizer, Moderna and other high-consumption vaccine makers. to be more charitable than they have been up to now.
Talks are deadlocked as the EU and UK play a leading role in blocking the waiver.
The OECD cannot impose sanctions on its members if they work against its advice. This can only prompt them to share the vaccine as part of a more thoughtful and strategic recovery from the pandemic.
For the moment, its recovery forecasts are based on a random and discontinuous recovery born from the hoarding of vaccines.
OECD chief economist Laurence Boone said the lack of global coordination on vaccine deployment “puts us all at risk”.
The UK is among the countries that pay Boone’s salaries. Unfortunately, that doesn’t mean he listens to his wise words.