Time for action, not more words
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We all know the main cause of the downturn is lack of funding but what is less clear is how we get out of this mess. It's a challenge that has eluded some of the greatest minds on the planet so I won't try to provide an answer here.
But as further pain comes with the news that some 1,600 jobs are set to go from Lloyds Banking Group, hopes that the economy is recovering have been reinforced by data showing the first rise in industrial production for 14 months.
Output in April rose 0.3% compared with March, according to the Office for National Statistics. Analysts had forecast a fall of 0.1%.
At the same time consumer demand could be steadying as trade figures show that imports rose by 2% in April. But while overall exports grew by 2.4%, exports of traded goods excluding oil edged down by 0.2%, indicating that the benefit to UK factories from the weaker pound is being offset by depressed demand from overseas.
Furthermore, a key survey suggests that during May the service industries - the engine room of the economy - grew, with the CIPS/Markit barometer of services hitting 51.7 in a sixth consecutive monthly rise.
The figures also give credence to the forecasts of chancellor Alistair Darling who said in his last Budget that the economy would begin to recover by Christmas. At the time many economists disagreed, including those at the International Monetary Fund.
At a lower level, surveyors' confidence is returning, according to figures from mortgage and property services outsourcing specialist xit2.
In May, the average property valuation was 95% of the offer price. At the peak of the market in 2007 the average valuation was 98% of the offer price. Confidence in house prices plunged in 2008 and October last year saw valuer confidence at an all-time low, with the average valuation at just 92% of the offer price.
Prime Minister Gordon Brown has spoken of the need to strike a balance between serving home owners and encouraging responsibility in the housing market, saying the problem of affordable mortgages must be solved and expressing a belief the mortgage market could be simplified.
There have been some suggestions that the government should use nationalised banks to offer standardised mortgage products. The recent review of the mortgage market by Lord Adair Turner, chairman of the Financial Services Authority, also aired the possibility of limiting LTVs.
Meanwhile, both Turner and Bank of England governor Mervyn King have echoed a question once posed by the PM - whether it should be possible to take out a mortgage for more than a property is worth.
For years the government has said it would like to see greater take-up of long-term fixed rate mortgages. But there have been no policy measures to encourage this, and anyway any aspirations in that regard may have been thwarted by market disruption as a result of the credit crunch.
But in response to the continuing shortage of housing finance the PM has indicated that local authorities that already have the power to issue mortgages should be encouraged to do so. Tory leader David Cameron has also been vocal on the housing market of late, expressing the view that we should kick our addiction to house price volatility and instead concentrate on making sure we build enough homes so every community can meet its housing needs. He also says consumers must be given more opportunity to own homes.
So we are seeing some signs of an upturn in the economy - and in the housing market specifically - and while the government is making noises about addressing the mortgage market and the Tories seem to support Labour's intention to build more homes, talk is cheap.
It remains to be seen whether politicians will take decisive action to complement the quantitative easing that seems to be finally filtering through.
Whichever party is in the hot seat after the next general election, politicians must now show a genuine commitment to the mortgage and housing markets for the good of the economy as a whole. How right Berra was.
Source:
Lending Strategy
