2003 v 2015 – How Times Change
ENGLAND WIN THE RUGBY WORLD CUP would have been the perfect headline when, 7 weeks ago, we were discussing the hope that England’s heroic victory in 2003 would be repeated on home turf. This got us thinking about how times have changed for most of us over the last 12 years since that incredible feat.
Unfortunately fate, the group of death and some ill-judged decision making didn’t give us the headline we wanted. However today’s announcement that the Bank of England base rate has again been held at 0.5% highlights that we are living in a very different landscape to that of 12 years ago and some of the comparisons we researched made for very interesting reading.
As we certainly would not profess to be anything resembling qualified economists we looked at the changes in a range of items that affect us every day from beer and milk, and given that we are property consultants, this went through to interest rates and house prices.
As with all good stories this one starts with beer, and why wouldn’t it?! Bread and beer can arguably be seen as staples to all healthy lifestyles and both have risen significantly. According to www.statista.com, a pint of lager has risen by 67% and bread 59%. Now for those more well versed in such intricacies, an uplift of just over £1 on a pint in 12 years may be considered to be relatively modest but perhaps that is also relative to consumption!
What took main focus was the shift in interest rates over this time. The graph below shows the trajectory over the 12 years, with the clear effect of using these rates to try and stimulate the economy following the crash in 08’ has had.
Again, and to cover any potential complaints against our findings we must highlight we aren’t economists but, as we like to do with all things – let’s keep it simple. The dramatic reduction with interest rates was an attempt to create more disposable income, stimulating the property market with affordable mortgages, growing confidence and getting more cash in circulation. All of which, to an extent looks to have happened, however when you speak to the man on the street has anyone got any extra money to consume the aforementioned beer and sandwiches with?
The cost of living, especially utilities, fuel and perishables (from our research anyway) seem to have swallowed up any disposable income people might have.
Property prices according to www.ons.gov.uk are on average just over 60% higher than those of 03’ across the UK (it irritates us as well when such a broad spectrum is taken – but as with all good research samples for the purpose of this it’s relevant). Reports from qualified observers continue to fluctuate with news on what is likely to be happening with interest’s rates, from views that they are going up and then remaining as they are continually changing for the past 18 months. As of today, we can officially confirm, they are still the same and according to Ed Conway (Economics Editor at the Bank of England) could remain so until 2017, Click here to see his full article. Clearly unexpected global events such as the Chinese Stock Market crash mean decisions need to be fluid however, what is also clear is that changes to the rates are likely (if not inevitable) certainly at some point anyway, although potentially further in the future than had been feared.
However with cost of living so high, interest rates (and therefore mortgages) so low, any changes to the interest rate when they do arrive, certainly if this is in the short term, could have far reaching consequences to those who have grown in confidence and stretched themselves in the property market when prices are still extremely high. This is even more relevant given the increased number of buy to let investors who have looked to the property market as an alternative pension plan and who are going to be also hit by the forthcoming changes to tax breaks and the like.
Whilst we, and for the first time in this article, seem to know as much as the economists, it is clear that we are still living in unprecedented times for the economy and the green shoots of recovery are probably more fragile than we are lead to believe.
In real terms, for most people, the benefit of lower interest rates has been eroded by the huge increases in the cost of utilities. Whilst the much talked about market correction is still going to be needed the impact for the population as a whole is quite uncertain. In our view uncertainty does not breed confidence and without that most people will continue to be cautious in the commitments they take on. Whatever happens, the next 12 months will certainly be interesting viewing which is more than we can say for the England rugby team and brings us very nicely back to where we started. Is that the time? I think I might grab a beer and a sandwich whilst they are still, relatively, affordable!