RICS Report on the UK Economy

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RICS Report on the UK Economy

Postby Nick » Tue Oct 02, 2012 2:43 pm

Passing from September to October, and into the final three months of the year, the
storm clouds – unsurprisingly – remain very much in view. That is not to say that
there won’t be some better news flow to soothe frayed nerves (most likely the
widely anticipated bounce in the Q3 GDP data). But even if this is indeed the case,
the headwinds to economic growth are likely to remain pretty challenging for some
time to come. Few would, after all, bet on an early end to the sovereign debt crisis
in the euro area. Meanwhile even if the Chancellor shows flexibility in jettisoning the
second of his budget rules in his forthcoming Autumn Statement, policy is set to
tighten significantly over the next few years. To this end, it was interesting to see
the minutes of the September MPC meeting indicate that several members still
have a policy easing bias, and feel ‘additional (monetary) stimulus was more likely
than not to be needed in due course’.
The improvement in the labour market remains one of the most surprising aspects
of this current economic climate. In the three months to July, the number of people
in employment rose by 236,000 against the previous three month period. However,
the underlying picture is rather less impressive. The number of full-time employees
(arguably the best guide to the demand for labour) is down on a year ago while self
and part-time employment have both increased. Reflecting this, it is not surprising
that the Bank of England believes the existing slack in the labour market (evident
by the 8% jobless rate) will keep wage growth subdued and exert further downward
pressure on inflation.
Indeed, while there was a small pickup in inflation in July, the rise to 2.6% was
largely driven by increases in transport (particularly air fares). August’s figure eased
back a touch to 2.5%, and we expect the rate to fall again in the coming months,
before broadly settling around the 2% target in early 2013. The weak growth
environment coupled with lower inflation leads us to believe that there is scope for
further monetary stimulus. We expect the Bank to resume its asset purchase
scheme in November, when the current round is set to end.
One particularly worrying aspect for the government is the state of the public
finances. In the first four months of the fiscal year, cumulative borrowing is running
at around £10bn more than in the same period of 2011/12. The current forecast for
the full year deficit is based on nominal GDP rising by 3.6% in 2012-13. This now
looks way too optimistic and helps to explain why the fiscal numbers are so far

RICS Economics’ market surveys and reports are available for free from the RICS web site - www.rics.org/economics
These include:
• The monthly UK Housing Market Survey http://www.rics.org/housingmarketsurvey
• The quarterly UK Construction Market Survey http://www.rics.org/constructionmarketsurvey
• The quarterly UK Lettings Market Survey http://www.rics.org/lettingsmarketsurvey
• The quarterly UK Commercial Market Survey http://www.rics.org/commercialmarketsurvey
• The semi-annual UK Rural Market Survey http://www.rics.org/ruralmarketsurvey
• The quarterly Global Commercial Market Survey http://www.rics.org/globalpropertysurvey
• The monthly RICS/ Ci Portuguese Housing Market Survey http://www.rics.org/portuguesemarketsurvey
• The Global Real Estate Weekly http://www.rics.org/grew
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