Osborne and Carney should enjoy their day in the sun

The UK fast becoming a stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent, even in the face of Osborne’s austerity.

If last week’s markets were quiet and range-bound due to Thanksgiving celebrations and a paucity of frontline data, this week could hardly present a more different proposition. Monday saw a strong US Manufacturing ISM survey, and yesterday the RBA decided to sit on its hands, but the committee was once again at pains to point out that they view the AUD’s strength as "uncomfortably high", with a "lower level of exchange rate likely to be needed to achieve balanced growth in the economy". They also highlighted that "public demand is forecast to be quite weak" and "considerable uncertainty surrounds this outlook" (for a pick-up in activity). More rate cuts are coming in Australia as Asia slows. The RBA are very perceptive - they realise that the Chinese 3rd plenum, although very constructive in the medium-term (10-20 years in Chinese terms!) implies slower growth in the short-term, as the economy rebalances away from export-fest to the kind of consumer-lead growth that is all too familiar to us in the UK.

We are entering a dangerous era of change for global growth, with the onus being passed to developed markets to take over as locomotives. Really?! With an economic block the size of the Eurozone destined to flatline for years to come, or implode, and a US economy that will struggle to reach escape velocity as the Fed removes the punch bowl, this looks like a vain hope. Just look at the effect on the US housing market of even the suggestion of tapering and a 100 bp rise in mortgage rates this summer-and the housing recovery has played a very significant part in what meagre growth we have seen thus far.

Against this backdrop, Messrs. Osborne and Carney are beginning to look pretty lucky (and smart actually) with the UK fast becoming the stand-out developed economy performer. Growth is heading into 2014 at a healthy 3 to 4 per cent annualized clip, even in the face of Osborne’s austerity, which is another good story. In his 5 December Autumn Statement, I expect Chancellor Osborne to be able to announce that the OBR has made a £13bn reduction in its official forecast for the 2013/2014 government deficit, compared to its March forecast, i.e. 5.8 per cent of GDP, rather than 6.9 per cent, and also to make reductions in deficit forecasts for the future. I would also expect upward revisions to growth prognoses.

Governor Carney seems to be fully on-board in helping out the Chancellor, with repeated promises that rates will stay lower for longer than recent positive data surprises would otherwise suggest. Last week’s decision by the Bank of England to restrict its Funding for Lending Scheme to the provision of cheap liquidity to banks for business lending, rather than also for household mortgages, also implies a concrete, and rather subtle, message that the Bank will use macro-prudential tools to cool parts of the economy if it deems this necessary - and not conventional monetary tightening. This having been said, I’d say this change in policy will have negligible effect on the UK housing market, as cheap liquidity is currently plentiful anyway, and the government’s two Help to Buy schemes will be the real policy drivers of the housing market - eventually achieving the Nirvana of increased home building, as well as the feel-good factor from higher prices that British homeowners crave like the next heroin high. I would be extremely surprised if Help to Buy was altered at all before the next election in May 2015.

The real question is whether the UK can continue to thrive in the face of headwinds from Europe, Asia and possibly the US.

Mr Osborne is starting to look pretty lucky. Photograph: Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.