Risk of recession 'low'.

The risk of a recession remains low even though UK economic growth will slow sharply in 2008, a report says. The Ernst & Young ITEM Club, using the Treasury's own model of the economy, expects the economy to expand by 1.8% in 2008 compared with 3.1% last year. It expects interest rates to fall to mitigate the effect of the downturn. One factor in warding off a recession will be investment from cash-rich government controlled funds in Asia and the Middle East, it said.

http://news.bbc.co.uk/1/hi/business/7198702.stm

On the theme of recession, Evan Davis, in his latest blog, considers how to survive an economic slowdown. Should consumers spend or save? He refers to Keynes' 'paradox of thrift' and the significance of the level of savings for the economy.

http://www.bbc.co.uk/blogs/thereporters/evandavis/

Housing slowdown continues

Further evidence of a housing slowdown emerged in December’s FT house index, which showed that house price inflation has slowed from the summer’s double digit rate of growth to its lowest rate this year. Click on the link below to view the FT interactive house price map.

http://www.ft.com/cms/s/2/37c59e28-a21c-11db-a187-0000779e2340.html

Property prices are falling to an extent not seen since the 1990s housing recession, a surveyors' body warns. The Royal Institution of Chartered Surveyors (Rics) said 49.1% more surveyors saw price falls in December than reported a rise. This was the gloomiest figure since November 1992.
Prices have been hit by last year's interest rate rises and tighter lending criteria, Rics said. Other surveys have also indicated the market is slowing.

How are prices determined in markets?

Evan Davis' recent Evanonomics piece on how markets set prices should be of interest to students, particularly those in Year 12 who have been reviewing their understanding of prices and markets. He examines the energy market and the role of competition (or lack of it) in setting prices. There are some interesting reponses after the article.

An essential read!!

http://www.bbc.co.uk/blogs/thereporters/evandavis/2008/01/setting_prices.html

Inflation unchanged, unemployment down.

UK inflation remained unchanged in December with the Consumer Prices Index (CPI) figure - the government's preferred measurement - held at 2.1% for a third month in succession. The biggest inflationary pressure was continuing high food prices. The Retail Price Index (RPI) inflation measurement, which includes mortgage interest payments, eased to 4% from 4.3% in November. Higher energy prices are expected to feed their way into the inflation rate in the next few months.

UK unemployment fell by 13,000 between September and November to stand at 1.65 million.
The number of people claiming jobseeker's allowance in December fell by 6,400 to 807,700 which was the lowest number since 1975 and the 15th consecutive monthly fall in the number of claimants. Analysts said the data suggested the UK job market remained robust despite expectations of an economic slowdown.

France seeks new growth measure

The BBC site reports on the attempts by French President, Nicolas Sarkozy, to create a new measure for economic growth that addresses quality-of-life issues, not simply Gross Domestic Product (GDP). He has engaged the help of two Nobel prizewinners in Joseph Stiglitz and Armatya Sen. Mr Sarkozy, who came to power in 2007, said he was keen to boost France's economy by increasing productivity through longer working hours.

Interest rates on hold

Both the Bank of England and the European Central Bank (ECB) have kept interest rates unchanged. UK rates remained at 5.5% in what was described as a tough decision as the MPC had to balance signs of a slowdown in consumer spending against growing inflationary pressures. There is considerable belief that there will be further rate cut in February. Rates in the Eurozone remained at 4% where high oil prices and an increase in the cost of food have buoyed inflation at a time when economic growth is seen slowing. The threat of increasing inflation is likely to stave off any cut in eurozone rates in the near future.

World Bank predicts growth slowdown

Global economic growth will slow in 2008 as the credit crunch hits the richest countries, according to the World Bank. But higher growth in developing countries, particular China, will cushion the slowdown. It expects US growth to slow sharply to 1% in the first half os 2008 but recover quickly by 2009. Overall, the industrialised countries are expected to grow by 2.2% this year. In contrast, China is expected to grow by 10% over the next two years, with India not far behind.

However, it warns there is also a risk on the "upside", with the economic boom leading to accelerating inflation and an over-valued stock market in China and other emerging markets.

http://news.bbc.co.uk/1/hi/business/7177397.stm

http://www.guardian.co.uk/business/2008/jan/09/globaleconomy.worldbank

Get your holiday euros now

According to Larry Elliott, the Guardian's Economics Editor, 'sterling has been flying too high to long - a fall will bring us back to earth'. All the factors that have ensured the pound's strength over the past ten years will go into reverse. Whilst a lower pound is no magic answer for exports it will 'help to start the long overdue rebalancing of the economy.' The financial markets were given a shock before Christmas when balance of payments data was released showing that Britain's current account deficit was proportionately just as big as that in the United States at 5.7% of GDP in the three months to September 2007. Investment income was never going to fill the gap in the current account left by the decline of manufacturing exports.

http://www.guardian.co.uk/business/2008/jan/07/economy.sterlingrate

End of the good times?

A very entertaining article by William Keegan in this week's Business Observer. He suggests that we have made the mistake of believing that the business cycle had been abolished and that the good times were going to go on uninterrupted and indefinitely. He believes 2008 will be the year of reckoning.

http://www.guardian.co.uk/business/2008/jan/06/economics.useconomy

Tight decision for Monetary Policy Committee?

The slowdown in employment, caused by the impact of the credit crunch, and rising fuel prices will be key factors considered when the MPC meet this week. After voting unanimously last month to cut interest rates the members will have to decide whether there is sufficient evidence of a slowdown to justify a further rate cut or whether the fear of infationary pressure results in a more cautious approach. The MPC may also have been alarmed by the increase in US unemployment, at a two year high of 5%, indicating that the world's largest economy is on the brink of recession.

An 'Economic Storm' on the way?

An excellent overview of the prospects for the British and world economies by Larry Elliot in today's Guardian G2. What impact will political developments have on the world economy? How likely is a full blown recession? Are we on the verge of another Great Depression? Is the British economy in a better position to weather a downturn as a result of the growth and stability of the past fifteen years?

Are we heading for a 'perfect economic storm'?

Evanomics

It is worth your time to check out Evan Davis' reports on the BBC website entitled 'Evanomics'. See 'Unsustainable Deficit' for a very clear analysis of our current balance of payments situation and the impact on the economy as a whole.

Banks reduce UK household loans

Signs that the credit crunch is working its way through to consumers with the news that banks reduced their lending to households in the the last three months of 2007. Lending to business customers has also fallen sharply. This is likely to have an effect on both consumer spending and business investment, adversely affecting prospects for meeting the growth target.

http://news.bbc.co.uk/1/hi/business/7169389.stm