An article in the Telegraph reported on the changing economic outlook for the UK. There is not necessarily any cause for undue concern at the moment but there is a definite change of mood taking place and the focus on a troubled Europe has started to switch a little toward the UK and whether we are winning the debt challenge and can still be regarded as a ‘safe haven’?
For the last 4 years or so heavily indebted countries have been successful in staving off the effects of the ‘Credit Crunch’ by pumping money into their economies without any apparent adverse consequences, in particular so far without inflationary consequences. The following article raises the spectre of ‘stagflation’ and the potential weakening of Sterling and downgrading of UK debt.
On the face of it the international community are less convinced that we are taking steps to repay our debt but, instead, may be resorting to our old trick of trying to inflate our way out of the problem. If the Chancellor cannot persuade the world otherwise then the B of E / UK may have to offer higher interest rates in order to ‘sell’ the UK’s debt in future.
House prices: Arguably, house prices have been inflated by monetary stimulation and artificially low interest rates. Nowhere more so than in the centre of London through the high level of foreign ownership, which will have fed through to the wider economy. What will happen if we have to increase interest rates in order to control inflation and to defend Sterling – as a country we have been in that position before!?
Therefore, we could conclude that it would appear to be a good time to be securing a long term fixed interest rate but perhaps not the best time to be buying into a boom in house prices!?
But of course, if we can take a 10 to 20 year view everything is relative, and for a home that we will be living in why should we worry too much about relative asset prices and therefore the price at which we buy …………… so long as we can afford the borrowing costs and repayments!?