Weekly news update

Noises from the OECD last week that we are past the worst of the downturn will have been met with sighs of relief from the euro area where Quarter 1 output plummeted at never before seen rates. This doesn’t mean a recovery is in sight, just that the pace of decline is slowing. For the time being, “less rapid contraction” is the new “green shoots”.

The Bank of England remained reluctant to buy into any building wave of optimism. During the press conference to present the latest Quarterly Inflation Report, Governor Mervyn King, emphasised that any recovery from the current “unprecedented recession” would be sluggish. The projected growth trajectory was more pessimistic than the one presented three months ago, showing a likely contraction of around 4% this year, before approaching positive territory next year. However, King also acknowledged that any forecast of growth and inflation at this point in the cycle carried an unusual degree of uncertainty, meaning that both upside and downside surprises are possible in the months ahead.

We saw a glimpse of the two sides of the UK housing market last week. “Green shootists” will take heart from the renewed signs of buyer interest reported by the Royal Institution of Chartered Surveyors (RICS). Enquiries by prospective buyers have risen for six months on the trot, and agreed sales have also started to increase. Unfortunately, the number of distressed borrowers is rising too: 12,800 properties were repossessed in Q1, 23% more than in Q4. The buy-to-let segment, which sprung up only in the last decade, is particularly concerning. The number of buy-to-let borrowers more than three months in arrears has trebled in the last year. House prices are unlikely to stabilise until demand and supply find an equilibrium. As distressed sales rise, this remains some way off.

The latest news from the UK labour market was unexpected, as much because it was leaked a day early as for the figures themselves. The unemployment rate rose 0.4 percentage points to 7.1% in March, driven by the highest quarterly increase in the number of people looking for jobs since 1981. New entrants to the labour market accounted for roughly a third of the increase in unemployment; the rest was due to redundancies and voluntary leavers. Other job indicators looked equally dire: wages declined 0.4% compared to last year- the first decline on record - as vacancies plummeted further.

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