Macroeconomics: UK economy, IB Economics

Barclaycard's survey of consumer spending always makes for interesting reading and this one is no different, highlighting, as it does, the fact that even as inflation has started to fall, consumer spending hasn't picked up. 

They reckon that a number of factors account for subdued spending, not least rising Council Tax bills and the higher cost of mobile phones and broadband access. 

This article highlights the fact that it seems that mortgage rates are likely to be higher than they have been for much of the recent past, with many seeing 4% as the new normal.

Of course, higher mortgage rates have implications for consumer spending and thus the wider health of the macroeconomy. 

A member of the campaign group, Patriotic Millionaires UK, Patrick White, writes in the Guardian about how inflation could be tackled, and I'm struck by the fact he points out an odd paradox. We do expect ordinary citizens to cut their spending and yet it's rarely the case that the spending of the most wealthy falls. 

Either way, his article calls for a wealth tax and a rationalisation of National Insurance, arguing that he's not in favour of taxing work per se, but taxing wealth accumulation unrelated to work. 

Retail sales are markedly down, by 3.2% compared to the previous year, apparently because shoppers exploited Black Friday to snag some bargains. 

However, looked at in terms of the broader macroeconomy, it doesn't bode well for growth. Are we going to fall into recession?

The Lord giveth, and the Lord taketh away. GDP fell by 0.3% in October but rose by the same amount, driven by higher retail spending associated with Black Friday among other things. 

So it's as you were, nothing for you to see here officer and still the prospect of the UK economy falling into recession. 

There's little Christmas cheer in the retail sector, with the prospects for 2024 looking similarly bleak. Higher costs, including the minimum wage, and lower levels of consumer spending don't make for a good trading environment. 

The Guardian take on today's economic growth figures, details the impact of the cost of living crisis on economic activity and perhaps hints that the worst is yet to come. 

The latest Barclaycard data tracking consumer spending seems to illustrate a change in spending patterns - with fewer restaurant trips and takeaway and, seemingly, an increase in saving as consumers look towards a Christmas splurge. 

The Guardian wonders what the next few years for the car industry if we revert to higher interest rates. Higher interest rates mean less borrowing and if people simply no longer decide to regularly upgrade their cars, then the sector is going to suffer. 

And any decline in spending is going to have a multiplied effect. 

Some analysts are forecasting that the implications of the rise in mortgage rates is going to have a more marked effect on the UK economy that the recent energy crisis. As mortgage interest rates rise, households are going to cut back on spending elsewhere, and this will have inevitable implications for economic growth. 

A fascinating insight into the nature of the housing market and the implications of this for people on variable mortgages - in short, prior to the next election, a lot of people are going to start paying a whole lot more for their mortgages and it will be interesting to see how this affects both the economic and the political environment. 

It seems as though the affordability, or lack of affordability, is back on the housing market agenda, with this Guardian piece highlighting the fact that the average house price is now nine times average earnings and rental costs are also rising. 

This has significant implications for the macroeconomy, not least levels of consumer spending. 

More evidence of shrinkflation, reported by Barclays, with two-thirds consumers noticing the phenomenon as they shop, and as a result many have altered their shopping habits, buying in bulk and reducing discretionary spending. This is something that is also reflected in retail sales figures. 

And, as if by magic, the uncertainty regarding future interest rates cuts has fed through into mortgage markets, with some lenders raising their fixed-rate mortgages a few fractions of a per cent.

This, of course has implications for consumer spending: in the first place, it raises housing costs and probably reduces consumer spending in this way. Secondly, it's likely to deflate asset prices - such as the stock market - and the negative wealth effect of this is also likely to feed through into lower spending too.

The cost of living crisis rears its head again, with the news that 7.4m consumers are struggling to pay their bills, which indicates the extent to which income inequality remains an issue, and also tells you that consumer spending is going to be low.

It seems that levels of debt remain exceptionally high, and this doesn't bode well for economic growth. If nearly 7m people are in financial difficulty, that's a sizeable proportion of the population of working age - and indicative of a two-tier society where some people are doing OK - their bleating notwithstanding - and others are struggling to pay their energy bills and put food on the table. 

I 'scoop' this as a leading indicator: if lenders are expecting the largest quarterly rise in missed repayments, what does this imply about the UK's economic prospects? 

To me, it's self-evident: high levels of debt,  imply high levels of debt repayment, and a lack of consumption. And that implies...

That, my friends, is a chain of reasoning. 

A snapshot of the housing market, which I've put here because of the macroeconomic implications of higher interest rates for 2024, although it seems that the market is likely to recover after this, with house prices starting to increase alongside rents from 2025. 

Again, another housing market/D&S story, this time with average house prices down by £18,000 according to Zoopla. This time I've put it on the Macroeconomics board, because this has implications for household wealth and thus consumer spending. 

It's MPC day today, and we wait with bated breath to see what the Bank of England is going to do with interest rates. 

On the one hand, inflation's still high, and that's a concern. On the other hand, there are signs of the labour market weakening, a flat housing market, businesses struggling and households cutting back on consumer spending. 

Let's see what the Bank of England decides. 

The Nationwide latest data suggests that year-on-year, house prices have fallen by 3.8% compared to July last year. The price of a typical home is now £260,828, which is bad news for homeowners, who will have seen a decrease in their wealth. 

The Bank of England's data suggests that there's been a net withdrawal of £4.6bn from savings accounts in the last month. I suspect that it reflects the impact of the cost of living crisis as households struggle to meet their existing financial obligations. 

And if this is happening it doesn't bode well for levels of consumption, and, by definition, economic growth.

One of the issues 'du jour' is the "ticking timebomb" of mortgage borrowing, with many people worried about the effect of higher interest rates on people with variable rate mortgages or those about to renegotiate fixed rate mortgages. 

This is the Labour Party's proposal for how to deal with this. As ever, though, think about what this implies - a shift to interest-only borrowing might incentivise risk-taking in the market, and it would certainly adversely affect banks' profits.

And with the latest labour market data today, it seems self-evident that monetary policy is going to be tightened again, meaning higher interest rates going forward and bad news for mortgage borrowers going forward. 

And if it's bad news for them, it's bad news for consumer spending, and, by definition, the wider UK economy too. 

How have shopping habits changed during the cost of living crisis? This BBC article looks at five trends that have emerged: we shop less often but spend more; we're now shopping online to a lesser extent; there's a switch to own brand goods; the discounters - Aldi and Lidl - are gaining market share; people are looking for discounts via loyalty schemes.