Although we’re nearly in summer now, the weather has been a bit topsy-turvy of late – one minute the sun’s out and we are dusting off the barbecue and the next, it’s freezing cold, and we have to rush back inside to dig out our winter coats.
The UK’s economy seems to be on a similar path, with the cost-of-living soaring and the base rate rising, while at the same time, house prices and rents are hitting record highs and the Bank of England (B of E) is predicting a slowdown. So, what on earth is going on and what’s going to happen next?
The first thing to note is that you need to be careful what you read. Although the B of E’s pronouncements have been responsible for some fairly gloomy headlines of late, they have also generated some heavy criticism from within the financial world. Many commentators have said that they are being far too bearish. Others have gone further, saying they expect the next set of economic data from the government’s Office of Borrowing Responsibility to contradict them.
It’s unusual to hear such strong criticism of the Bank but it is indicative of how strongly those commentators feel. The Times has even suggested it may be because they are trying to frighten people into pay restraint, in order to keep a lid on inflation.
Whatever they are up to, it doesn’t change the simple fact there is a massive shortfall in supply in both the sales and rental markets and where there are shortfalls, prices will rise. And, even though the base rate has gone up, it’s still incredibly low in an historical context. The housing market also tends to be affected by unemployment levels but, right now, labour shortages are nearly as acute as they are in the property world and unemployment is at its lowest level for half a century. And, yes, the base rate rises and the cost of living will affect house prices (and rents) – but in the sales market, all that will happen is those price rises will come down to more moderate levels rather than going into reverse. In the rental market, rent rises are likely to increase as landlords pass on any cost increases to their tenants.
Well, that’s all from me for this month. I’ll be back again in June when we’ll have the Diamond Jubilee and, hopefully, the sun will come out and stay out!
