The road ahead

Almost every economic commentator has been focused on matters arising from the recent General Election and how the new administration might change fiscal measures within the UK.

Change that has already been announced is for an initial £6 billion to be trimmed from government expenditure, mainly by ‘waste savings’. More brutal spending cuts are due to be announced at the time of the Budget next week.

Given there is a general consensus of opinion that a world recession was first avoided by quantitative easing measures, applied in both the Euro zone and the United States over the last year or so, where does the economic cycle now take us?

Those countries with the greatest debt burdens are certainly in fear of their economies being destabilised by the burden of debt they might hold.  Perhaps the greatest fear at the present time is that of Greece not being able to pay back its debt or indeed the interest payments relating to that debt.

This in itself has brought the Euro under considerable pressure and has necessitated some ‘propping up’ measures by other members within the Euro zone - Germany being one of the most significant contributors to such measures.  Japan has its own problems with debt and it also faces pressure on its currency, at the very time when a strong Yen (not devalued Yen) is required to pay back creditors.

So what of World demand and the risks of inflation?

So far, America seems to be continuing on the path of recovery, with a 0.8 per cent rise in output in the first quarter of this year. However, their domestic housing market remains weak.

The Pacific rim region is still doing well, albeit with worries over Japan and China being over-extended in their own ways.

In comparison, Sterling has fallen some 2.5 per cent over the last three months against a basket of currencies. This depreciation and the rise in oil prices will have an effect on inflation over the coming months. However, it is said such consumer price inflation will be met by spare capacity within the economy and this will have a controlling effect on such inflation, which is hoped to have had a neutral impact by the year end. This is why the Bank of England monetary policy committee has yet again elected to leave the bank rate at 0.5 per cent.

Turning to housing, Eric Pickles, the communities secretary, has no doubt created a temporary policy vacuum by his recent announcements concerning the abolition of regional planning targets. In fact, speedy resolution has been sought by a further announcement of change to policy by Grant Shapps, the housing minister. He has said the government will reward those councils that allow development, by making a matching payment to the extra council tax receipt coming from such development for six years.

Assuming the local authority in question wants to see housing development, there would now seem to be an opportunistic environment for developers to exploit the planned system to promote currently unallocated land ahead of those sites already allocated in emerging local development frameworks. 

Let the road ahead be a clear and straight path to a full recovery and ever greater housing units (both private and social) being built.

Justin Sumner is director – new homes at consultancy GL Hearn

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