According to the Halifax, UK house prices fell 1.5% last month.
You may wonder why after house prices started to rise last year. Some people are blaming stamp duty rises, others blaming snow.
Nobody, at least that I have seen so far, seems to be blaming quantitative easing.
This was the programme which deeply unsettled me when it was announced where the Bank of England pumped £200 billion into the economy. Yes, it got credit markets working somewhat, it reduced the cost of inter-bank lending and probably stopped the recession being more severe or longer.
But I think this has more substantial negative impacts than anyone is letting on. And I still have my suspicions that it was engineered to make Gordon Brown more popular as he ‘saved the economy’ (or the world as he once stated in Prime Minister’s Questions). One was a fake rise in house prices. All this money sloshing around in the system had to go somewhere – with interest rates at near zero there was little point in putting it into structured savings accounts or government bonds so investors bought more property, pushing up the prices.
But as quantitative easing has ended (hopefully), there is not this spare money to invest in property.
There is also lots of this money flying around in currency markets, part of the reason for the increased volatility of currencies.
Finally it also pushes up inflation – 3.5% so far. Despite the Bank of England a little while ago expecting it to peak at 1.4%.
I still thoroughly believe house prices have a long way to fall. Especially with much higher interest rates potentially around the corner.
The weakness in Sterling and ever-increasing inflation must encourage interest rates to rise…surely? Maybe not to 10% this year as I wildly predicted a while back but any kind of interest rate rises will force more homes into repossession and house prices lower.
Recession number 2 is well under way in my eyes.
Any questions on the economy for me?