Unemployment down, trade balance improves, house prices continue to fall

A busy time for economic news. Claimant count unemployment fell by 11,100 in November to a 32 year low of 813,000, the lowest figure since June 1975. Total unemployment (ILO measure) fell 15,000 to 1.64milion in the three months to October. Average earnings increased by 4% in the year to October, down 0.1% from the previous month's rate. Both sets of data may ease inflationary pressures.

The UK trade deficit narrowed in October; the shortfall on trade in goods and services fell to £4.1bn in October, from £4.8bn in September. The goods trade deficit shrank by more than analysts had been expecting, narrowing to £7.1bn from September's upwardly-revised figure of £8bn. The surplus in the services sector came in at £3bn for October, down slightly from September's surplus of £3.1bn.

House prices in the UK fell for the fourth month in a row in November, says the Royal Institution of Chartered Surveyors (Rics). Its latest survey shows that price falls became more widespread, with 58% of its members reporting a drop in prices over the previous three months. Prices fell in England, Wales and Northern Ireland, and rose only in Scotland.

Temporary Relief?

The Observer today, whilst welcoming the rate cut as a stimulus to Christmas spending warns that Britain's 'buy-now-pay-later' faces a reckoning. Household debt now amounts to an 'extraordinary 160% of GDP; and as banks struggle with rising financing costs, the housing market - and consumer spending - are at risk.' We are overindebted, the housing market is due for a significant correction (see recent house price data from Halifax and Nationwide) and a number of global factors are moving against us.

It suggests that the decision to cut interest rates was far from easy,. The economy is coping with two shocks simultaneously: a renewed jump in oil and food prices, putting upward pressure on inflation; and a credit squeeze. The MPC had to decide which was creating the greater risk. The committee will also have had a cautionary tale from the recent past in their minds. In late 2004 and early 2005, the housing market slowed sharply, in what many observers believed at the time was the beginning of a long-anticipated slowdown. House price inflation slipped rapidly, from 17.6 per cent in 2004 on the Nationwide measure to just 4.3 per cent in 2005. As consumer spending slowed, the Bank made a one-off rate cut in August 2005. The financial impact of the cut was small, but the effect was huge. Analysts were astounded at the speed with which confidence returned; home buyers flooded back into the market and prices took off again.

http://www.guardian.co.uk/business/2007/dec/09/interestrates.bankofenglandgovernor

Interesting items on tutor2u

Some really good stuff on the turo2u economics blog. One item reports on signs that the UK savings ratio is increasing and provides an analysis of the effect on the economy of higher savings. There are some interesting charts showing trends in both the savings ratio and house prices. There is also a feature on the interest rate cut with a powerpoint presentation explaining the economic background to the cut.

Read them both!

Superstar Premium

Interesting review of Britain's super rich on the BBC News site. People in all kinds of professions are taking advantage of a phenomenon known as the Superstar Premium to earn mega salaries. Examples of musicians, footballers and chefs are used to show how growing audiences and developments in technology haved increased their earning power. There is an attempt to justify such earnings in that the money has to be spent on things the rest of society produces and, therefore, it is disseminated to everyone else.

http://news.bbc.co.uk/1/hi/business/7118991.stm

OPEC rules out increase in oil output

Oil producers' cartel Opec has agreed to keep output steady at a meeting in Abu Dhabi despite pressure on it to raise production to dampen prices. They argue that the increase in output in September means that there are sufficient supplies of oil available for the winter period. They claim thre is no reason for oil to be trading at $100 a barrel and blame speculators for increasing the price.

BBC News provides a good analysis of the reasons for rising oil prices.
http://news.bbc.co.uk/1/hi/business/7048600.stm

Credit crunch beginning to hit family budgets

The Guardian reports on dire warnings from the retail, leisure and media sector that the impact of the credit crunch is being felt beyond financial markets. Three cases studies (a hamburger chain, a pubs group and a sofa store) illustrate the uncertainty created by the sub-prime crisis. Forecasters warn that the UK is starting to show evidence of strained household budgets and a wider economic downturn.The British Retail Consortium reported a weak rise in sales last month despite heavy discounts. Consumer confidence is also at a four year low. Tesco called on the Bank of England's monetary policy committee to cut interest rates soon, saying the risks to the economy posed by inflation were far lower than the threat connected with a downturn in consumer confidence.

http://www.guardian.co.uk/business/2007/dec/04/retail.creditcrunch
http://www.guardian.co.uk/business/2007/nov/30/consumerspending.retail
http://www.guardian.co.uk/business/2007/dec/04/tesco.christmas2007

Cornish Tin Mine to reopen

BBC News ran an item on the re-opening of a tin mine in Cornwall. A good case study of resource allocation and the role of price. Check out the video clip below and relate it to the graph showing the changes in the world price of tin between January 2005 and November 2007.

http://news.bbc.co.uk/player/nol/newsid_7110000/newsid_7118200/7118269.stm?bw=bb&mp=wm&asb=1&news=1&bbcws=1#

The price of Tin

German unemployment hits 15 year low

As unemployment in the UK continues to edge upwards, the official German jobless figure fell 53,000 to 3.6million. Other economic news suggested less grounds for German optimism with inflation at 3%, a record 13 year high, and consumer confidence fragile in the run up to Christmas.

What does this mean for economic policy across the Eurozone?

http://news.bbc.co.uk/1/hi/business/7118761.stm

Largest fall in house prices for 12 years

House prices fell by 0.8% in November, the UK's biggest building society said today, the largest monthly fall it has reported in more than 12 years. Nationwide building society identified three reasons for the fall: poorer affordability, the effect of this year's interest rate rises, and expectations of lower price growth.

http://www.guardian.co.uk/money/2007/nov/29/houseprices.property
http://news.bbc.co.uk/1/hi/business/7118336.stm