Osborne should beware of a triple-dip recession

The government shouldn't assume that "the good news will keep coming".

One can hardly blame the government for seeking to convince voters that today's GDP figures prove that we're "on the right track". Growth of 1 per cent in the third quarter, the highest quarterly growth rate since 2007, is superficially impressive (the bounce back from the bank holiday added around 0.5 per cent, while Olympic ticket sales added 0.2 per cent) and makes it easier for George Osborne to argue that the economy is "healing".

But to borrow Cameron's phrase from yesterday, the government shouldn't assume "that the good news will keep coming". A significant number of economists believe it is possible or even probable that the economy will contract in quarter four (in what our economics editor David Blanchflower has called a "triple-dip recession"). A combination of further spending cuts, rising energy prices, and recession in the eurozone means that growth is likely to remain anaemic or non-existent.

Vicky Redwood of Capital Economics, for instance, said:

As the Olympic effects unwind, it is still possible that the economy contracts again in Q4. Indeed, the business surveys have been painting a slightly gloomier picture, suggesting that underlying output is still stagnating or even falling slightly.

Chris Williamson of the data provider Markit, said:

The government will most likely make the most out of this good news, but unfortunately it is unlikely that the UK will see such a strong performance again for some time. In reality, the danger is that this figure fuels a misguided belief that the economy is on the mend, when in fact there is plenty of evidence to suggest that momentum is being lost again.

There is a real risk that a return to contraction might be seen again in the fourth quarter.

The irony is that a slightly weaker figure in this quarter, by reducing the risk of a slump in Q4, might have suited the government more.

Balloons featuring images of George Osborne at the Conservative conference in Birmingham earlier this month. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.