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Shadow MPC

John Cupis MS blog

The kind editors at Mortgage Strategy have asked me to gaze once again into my crystal ball given the success of my predictions for 2012.

For my forecasts in January this year I managed to get that gross mortgage lending would be £135bn or similar to 2011, interest rates remain at 0.5 per cent, inflation drops to 2 per cent, the sterling/euro rate all about right, together with sporting predictions of Spain to win the Euros and Team GB medal success at the Olympics.

Harry Redknapp didn’t take the England job as I also predicted – but sadly Tottenham did not win the Premiership.

So to 2013 and in my view there are four key obstacles on the runway that could stop global growth taking off next year.

The Eurozone, the US’ fiscal cliff, economic slow down in China and the Far East, and rising tensions in the Middle East. So nothing major then.

Regular readers will know that my main worries for the UK in the next few years remain around the eurozone which shows very little sign of growth and an increasingly strained political and social environment.

While Germany has grown well in the past two years it has slowed in the third quarter this year dropped compared to the third quarter last year and is now deeply ensconced in solving the crisis in the southern European states of Spain, Greece and Italy.

The financial support required for these states will be significant and act as a continual drag on European growth for a decade or more.

Social unrest, political turmoil, and lack of pan-European unity will prevail.

Witness the ridiculous situation we have in trying to get agreement to the EU budget in Brussels this week where 40 per cent of the budget is spent on agriculture yet which generates less than 2% of EU GDP.

Disproportionately supporting farmers during one of the worst financial crises for a century is just plain wrong and outdated. There is a long way to go.

The US President Barack Obama faces an immediate problem with a combination of pre-agreed tax rises and spending cuts amounting to 5 per cent of US GDP – the so-called fiscal cliff.

The International Monetary Fund has forecast this would have a negative effect of 1 per cent on UK GDP next year if implemented in full.

The Chinese government recently had its 10 year leadership changeover.

The 30 year boom in Chinese growth may be slowing as wage costs increase and the rising oil price make it all much harder for the heavy investment/export led growth model in the coming years.

So my overall predictions for the UK are:

  • Modest gross residential lending to £145bn as Funding for Lending makes a contribution
  • UK base rates stay at 0.5 per cent for the whole of 2013
  • Inflation averaging slightly higher at 3 per cent for next year
  • UK GDP growth just 1 per cent vs 2012
  • Manchester United to win the Premiership and Alex Ferguson retires
  • England scrape a qualification to the World Cup

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