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| 图表类：英国经济 |
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Post-election blues
May 5th 2005
From The Economist print edition
The weak housing market is already slowing the economy
LABOUR made much of its success in managing the economy during the campaign. If the election had been delayed a few months, the party might have found it difficult to advance such a convincing case. The short-term economic outlook is darkening.
One worry is an unexpected pick-up in inflation. Annual consumer-price inflation jumped from 1.6% in February to 1.9% in March. Though not high by historic standards, it was the highest in almost seven years and uncomfortably close to the government's target of 2%.
The upsurge in inflation will weigh heavily with the Bank of England's Monetary Policy Committee (MPC) when it makes its next decision on interest rates on May 9th. Already, worries about inflationary pressures have led two members of the nine-strong committee to back a rise in interest rates from 4.75% to 5.0%.
However, the MPC seeks to curb future rather than current inflation. This is because a rise in interest rates takes about a year to slow the economy and then another year for that slowdown to have its maximum impact in braking inflation. So the committee will have to take into account not just the higher starting-point for inflation but worries that growth prospects are deteriorating.
Rises in consumer spending, which accounts for some two-thirds of GDP, have underpinned economic growth in the past few years. But in the last three months of 2004, household consumption grew at a quarterly rate of just 0.2%. In the first quarter of 2005, retail sales, which make up a third of consumption, rose in real terms by only 0.3%. A survey by the Confederation of British Industry (CBI) reported the sharpest annual fall in retail sales in April for almost 13 years.
Consumers started to shun the shops after the housing market turned down in the second half of last year. House prices have essentially stalled in the past few months. As a result, the annual rate of house-price inflation has decelerated sharply. As recently as last July, it was running at 20.3% according to the Nationwide index, but by this April it had fallen to 7.0%, the lowest in four years.
House prices are cooling in response to a steep decline in activity in the housing market. In March, 91,000 mortgages were approved for house purchases, somewhat more than in February but a quarter fewer than a year before. Turnover is likely to stay sluggish as potential sellers who are unwilling to accept lower prices respond by taking their houses off the market.
Last year, the Bank of England suggested that the usual link between house prices and consumer spending had weakened in recent years. Household consumption had grown respectably but not spectacularly at a time when house prices had been soaring. However, the link with retail sales seems to be re-asserting itself as the housing market turns sour (see chart).
A consumer slowdown is not necessarily a bad thing provided that it is not too sharp and that other sources of demand such as exports and investment can take up the slack. However, neither of these conditions can be relied upon. The consumer slowdown has been abrupt. Export orders in the past three months were the most disappointing since autumn 2003, according to the CBI's industrial trends survey in April. Businesses are unlikely to make big investments as they start to worry about a slowing economy.
What this suggests is that the MPC is likely to keep interest rates at 4.75% on May 9th. Its decisions later this year will hinge upon whether the consumer shows more resilience to a weak housing market than has been the case in the past six months.
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