Local impact of the downtown

The FT has produced an interactive graphic that looks at the local effects of the global slowdown.It shows you how the different regions of the UK are coping, highlighting the declines in house prices, the rise in unemployment and the escalating numbers of corporate insolvencies. (Link)

Panic in the markets...and bad news from the UK economy

Continued focus this morning on the financial markets following the failure of the US Congress to agree the financial rescue package. Tutor2u highlights some of the reaction and the detailed press coverage (all worth a read!).

Alongside this, almost unnoticed, further bad news about the UK economy which saw no growth in the second quarter of 2008, while the gap in the current account widened to its highest level in almost a year. Data from the Office for National Statistics (ONS) showed economic output remained the same as in the first quarter, confirming previous estimates. Growth was 0% in the second quarter - which was even lower than the 0.3% figure for the first quarter of 2008. Separately, balance of payments information showed there was a deficit of some £11bn in the current account in the second quarter. The current account deficit - which is the difference between imports and exports - widened by more than had been expected to £10.98bn, compared with £5.49bn in the first quarter. This is the biggest the deficit has been since the third quarter of 2007 and it equates to 3% of GDP. (Link: UK confirms economy at standstill )

This added to the news yesterday that new mortgage lending collapsed in August, according to the latest figures from the Bank of England. Banks and building societies lent an extra £143m in home loans last month, just 5% of July's lending figure and only 2% of the lending in August 2007. August is traditionally the quietest month for house sales. But house buyers may have been put off buying properties because of the continued fall in prices and widespread predictions of an imminent recession. (Link: Mortgage lending slumps)
The fall in house prices has accelerated in England and Wales, according to the Land Registry. Its latest report shows that prices fell by 1.9% in August, taking the annual rate of price deflation to 4.6%. (Link: House price fall 'accelerating')

All of this raises interesting questions about how we behave when we think there is going to be a recession. What will be the effect on growth if we decide to postpone consumption? What would we expect to happen to the balance of payments if we enter a recession? Why has there been an increase in the current account deficit at a time when the economy is slowing down? Will this news encourage the Monetary Policy Committe to lower interest rates?

Recession 'within months'.

The UK is facing a serious risk of recession within months, the findings of a survey of almost 5,000 small, medium and large businesses suggest. The British Chambers of Commerce's (BCC) quarterly report found the credit crunch and rising costs had dented the most important sectors of the economy. BBC News has an interview with David Frost, Director General of the BCC, where he talks about the changing mood of small/medium sized businesses. (Link to BBC News)

Good article by Larry Elliott in The Guardian (Click for link) in which he questions whether the official definition of a recession (two consecutive quarters of negative growth) is the most helpful measure in explainign the position the economy is in... 'an economy would not be in recession if it contracted by 5% in the first quarter, expanded by 0.1% in each of the following two quarters and then contracted again by 5% in the fourth quarter. '

News today that house prices continue to fall, down 2% in June (Link), house builder Barratt cuts jobs (Link) and that times are becoming even tougher for first-time buyers (Link).

Further confirmation of slowdown in housing market

UK house prices fell by 0.9% on average last month, according to the latest survey from the Nationwide. The decline was less severe than the record 2.5% fall seen in May, but prices were now 6.3% lower than a year ago. The Nationwide survey found that the housing market in Scotland had been more resilient than elsewhere. Although prices in the three months to June had fallen in Scotland by 1.8% compared with the previous quarter, it was the only area to see an annual growth, up 0.6%. (Further details here)

This survey follows news yesterday of a record low for mortgage approvals. The Bank of England said 42,000 homes were approved in May, a 28% fall compared with the previous month and 64% down on a year ago. This is the lowest since the Bank began reporting the figures in 1993 and lower than many analysts' predictions. Mortgage lending has slumped owing to the credit crunch with institutions reducing their willingness to lend. (Click here for details)