Wednesday, 7 November 2007

The blame game 1

Today, Bovis housebuilders reported that things aren't looking too good at the moment. Profits are down, and consumer confidence is ebbing away.

Here is the strange thing however. Bovis think that the sudden turnaround has very little to do with recent developments in the UK economy. Rather, consumers are getting worried because of the "problems in the US housing and finance markets were beginning to affect consumer confidence in the UK."

Try this quick experiment. Ask the next five people you meet whether their christmas spending plans will in any way be influenced by poor people in the US defaulting on their mortgages. Then follow up with a second question; are they maxed out on their credit cards and simply can not afford the annual spendfest.

Lets get a couple of things straight. First, companies like Bovis are in deep trouble. Second, these problems are local; the UK economy is drowning in debt and we have reached the tipping point. There is no more room on the national credit card for any further increase in spending. Third, our financial system has woken up to this reality. Our banks are in trouble. Northern Rock was but the herald to a wider financial crisis. Forth, this unsustainable debt burden, coupled with a growing financial crisis, will slow demand for all goods, including housing. Finally, we are heading for a recession.

So let us stop blaming all those poor folks in America. The UK is in a mess, and we caused it.

(The article below is from the times.)

Sharp decline in confidence knocks sales of new houses

The fallout from the global credit squeeze claimed another victim on this side of the Atlantic as one of Britain’s biggest housebuilders yesterday blamed an abrupt turnaround in consumer confidence for a drop in house sales.

In one of the firmest indications yet that the housing market is slowing, Bovis said that its sales had fallen sharply over the past six weeks and it would now miss its full-year forecasts. Profits will come in at least 7 per cent below expectations.

The warning was seen as a sign that the problems in the US housing and finance markets were beginning to affect consumer confidence in the UK. The City is betting that conditions in Britain’s housing market are set to deteriorate — the value of Britain’s top seven housebuilders has fallen by £8.7 billion, a drop of 42 per cent, since April 6, calculations by The Times show.

The crunch has also begun to cast its shadow over the jobs market, as a report showed employment growth on a worsening trend. The Recruitment and Employment Federation/KPMG reported that the rise in placements for permanent employment last month was the weakest pace in 13 months. Alan Nolan, a director of KPMG, said that the financial services and construction sectors could suffer the brunt of job losses that lie ahead.

1 comment:

Patrick said...

Absolutely correct, this mess is of our own making. Whilst the credit crunch may have started in America, the effects of our own debt binge have yet to be felt. It's going to be far worse for the UK:

"According to the National Institute of Economic and Social Research, the ratio of household debt to personal income stands at 1.62 in the UK. In the US it’s 1.42, Japan’s is 1.36 and in Germany it’s 1.09."