The prospects for the long awaited economic recovery have suffered a triple whammy as three significant factors have emerged:
1) The Olympic Games (following on the Diamond Jubilee celebrations in June) are going to paralyse the commercial operations of the City. The official ceremony to open the Village is on 15 July. The Games run from 27 July to 13 August. The Paralympic Games start on 29 August and finish on 12 September. During that time the priority will be to allocate transport (excluding cars which will be banned) to the competitors and spectators.
Many City based businesses are sending their staff home for the whole of August. It will be impossible to plan meetings or guarantee that individuals will be able to reach them.
The official spin is that the event will add £1.37bn to the British economy. There will certainly be huge consumer spending in a limited number of areas. However the reality is that the process of both local and national government will come to a halt. The party conference season will dominate September.
Britain will be on hold until October: the effects cannot be avoided as it is essential that the four billion people who will watch the Games (half the world’s population) gain the right impression and the event is (as it will be) a success.
2) The main threat to the UK economic recovery remains the failure of the housing market to revive. A report from the Institute of Economic Affairs emphasises that Britain’s property is expensive with only Australia having a similar cost of housing relative to earnings. It is also a myth that this country has run out of spare land. The UK has 247 inhabitants per square kilometre compared to the Netherlands (395), Belgium (342), Japan (339), Israel (327) and South Korea (484). Nine European regions have greater population densities that the South East of England. Only 9.9% of England’s surface area is developed.
The argument that council house privatisations is the problem is false. Britain’s social housing sector is still one of the largest representing 20% of the total housing. France is at 17% and Ireland is 8%.
The truth is that the Government cannot find any way to stimulate the housing market. Its NEWBUY Guarantee scheme where purchasers find 5% and the Government/builder supply 20% of the required 25% deposit is having little impact and is now threatened by the prospective increase in mortgage rates.
The solution is simple. Turn the RBS into a mortgage company and supply the market with low cost mortgages. The availability would need to be easier than at present and there would some defaults. The bank however would still have the security of the house. It would provide a massive tonic to Britain’s ailing economy.
3) The economy is in ‘double dip’. It contracted -0.2% in Q1. The financial sector is paralysed by over regulation and media has overtaken it as the lead generator of revenues. Retailers are facing further closures as consumer spending remains subdued. The oil price has fallen but prices remain high at the pumps due to government taxes and the greed of the suppliers. The whole situation will deteriorate more as Government cuts hit harder.
The Diamond Jubilee, the Olympic Games, the stagnating housing market and ‘double dip’ all add up to a long, hot summer.
In October reality will set in: don’t hold your breath.