I have so far treated Gordon Brown’s green shoots strategy with derision. He has convinced himself that a recovery is going to take root and make the nation realise that they do, in fact, love the Dear Leader. Whereas I first believed his green shoots were a mirage – now, I am not so sure. For the last few weeks, analysts have been revising up their forecasts – ending what seemed to be about 18 solid months of downwards revisions. Take the housing market – which had been expected to bottom out next year. If you look at it on a simple house price to salary ratio, it has a little bit more to fall…
HOUSE PRICE/EARNINGS RATIO, 1983-2009
But factor in mortgage payments and it has even undershot a little bit…
MORTGAGE PAYMENTS ON AVERAGE PRICE HOUSE, RENTS AND AVERAGE EARNINGS, INDEXED TO JAN 1983 =100, 1983-2009
Now, we all know that fixed rates are on the way up – so that second graph may soon be altered. But if housing is a bellwether of the economy (despite the Bank of England’s now notorious claim to the contrary during the boom years) then things may well be on the turn. And even Michael Saunders from Citi, whose research I have passed on to CoffeeHousers during the recession, is revising up: he expects 1 percent growth next year, up from 0.1 percent. His full note is now online – worth reading to see how he has upgraded his various forcecasts (the table is too small to reprint here). But he, like many, believes the recession will end next month – ie, the third quarter of 2009 will show positive economic growth.
So will this help Brown? I don’t believe so. Unemployment is a lagging indicator and will probably be rising all the way to the election. It will plateau at a horribly high rate and look like anything but a success. Brown can point to consumer confidence indicators, but if people are losing their jobs it will sound heartless. Callaghan delayed the election to let a recovery take root, as did Major. Both were right – in that the key indicators turned around. But neither were rewarded at the ballot box. I suspect Brown won’t be rewarded either. And what the Tories hope – pray for, in fact – is that the recovery surprises on the upside just as the recession has surprised on the downside.
Economic forecasting has proved such a risibly rough science that CoffeeHousers may give a horse laugh to all of the above. But it could well be that we’re about to bottom out, and that the Tories will be the ones reaping the benefits. Britain’s Year Zero was 1993 – not 1997. This time, the political cycle may now change precisely when the economic one does.
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