It may not seem it, but I’d say Gordon Brown’s latest relaunch has been going really rather well.
First you had Alistair Darling getting all honest and open with the electorate. The usual band of New Labour shills ridiculed him, of course. But right now his assertion that economic conditions are arguably the worst we’ve seen in 60 years strikes more of a chord with a nervous population than the hectoring of the “you’ve never had it so good, you ingrates” brigade.
Then, better yet, Charles Clarke pipes up with yet another whinge from the back benches, or wherever he’s currently residing. A call for Mr Brown to quit might be damaging from any other quarter. But this is almost calculated to make Mr Brown look attractive. The question, “which rotund oaf would you rather see running Britain – Clarke or Brown?” might make a good many people think “gosh, things really could be worse, after all.”
So not bad going for Mr Brown. Shame he had to spoil it all by opening his mouth last night…
Where is the resilience that Mr Brown is talking about?
Gordon Brown rather ruined his latest relaunch with a “business as usual” speech last night. He told the Scottish CBI in Glasgow last night that, in the face of all available evidence, he is “cautiously optimistic” about Britain’s prospects. Or rather, he said he is “cautiously optimistic about the long-term resilience and underlying strength of the economy. Because at root our economy today is better placed to weather any global economic storm than it was in the 1970s, 80s or early 90s.”
Oh, and he’s not going to resort to any “short-term gimmicks or giveaways” to help with the energy crisis. Which just goes to show that housebuilders – who have been tossed almost every short-term gimmick you could think of in the past week – must have a much more effective lobby group than those who can’t afford their gas bills.
Anyway. Maybe it’s just me, but I can’t help but wonder, if everything is so much more resilient these days, then why are so many economic readings at record lows? Mortgage approvals have never been lower. House prices in Britain are falling faster than at any point since 1931 (that’s in the days of the Great Depression – so much for Mr Darling exaggerating), says The Telegraph. “It is a major collapse,” said David Owen at Dresdner Kleinwort.
Why falling rates won’t help the housing market
Various individuals are getting all excited about the fact that fixed-rate home loans are now at their cheapest since the credit crunch kicked off. The average rate on a two-year fix now clocks in at 6.39%, compared to a peak of 7.08%, reports Moneyfacts.co.uk, a level not seen since July 2007.
So you could say that credit conditions are “easing”. But you’d be deluded to think that.
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Because lending isn’t just about the rate. Remember, the base rate actually bottomed as far back as 2003, at 3.5%, before rising all the way up to 5.75% in 2007. But the property boom continued, because despite rising base rates, lending criteria became ever less stringent. Lenders just put up with wafer-thin margins, in the quest for market share. So even if interest rates were rising, people were allowed to borrow higher multiples of their income, they were allowed to get loans with no deposit, and you could have a pretty patchy credit record and still get access to the best deals. Crucially, first-time buyers were offered interest-only deals almost by default, with no scrutiny as to how they would pay the capital at the end of the period.
It’s far different today. You now need a 10% minimum deposit to get any of the best deals on the market, and in many cases 25%. You can’t borrow as much money. Banks are also cracking down on interest-only loans.
The basic point is that banks have gone from chasing market share at any cost, to only wanting custom from the very best of the best. Everything points to lending criteria actually getting tighter in the months ahead – particularly the worrying idea that our banking system is essentially being propped up by the Bank of England (see yesterday’s Money Morning for more).
The economy is way beyond saving with artificial ‘boosts’
And it’s not just the housing market. New car sales are at their lowest levels in more than 40 years. “Britain’s biggest industry gave warning of deeper cuts in production to come as consumers, worried about the high cost of fuel and the economic downturn, shy away from big purchases and abandon the showrooms,” reports The Times.
Hilariously, (or it would be hilarious if it wasn’t so depressing) the Society of Motor Manufacturers and Traders “wants Mr Brown to set out an emergency economic plan.” What do they think he’s trying to do with all these inept relaunches? But the economy is way beyond saving with artificial ‘boosts’, even if Mr Brown had the money to fund them.
At the root of all this is one basic problem – the days of easy lending are over. Even if banks wanted to, they aren’t solvent enough to go back to those days. The only way out of this recession is the hard way. We need to rebuild our savings and pay down our debts. That takes time – but it will take even longer if the government keeps getting in the way by trying to spend its way out of trouble.
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