“Nominal house prices are staying the same in 2023”

Here are out notes on the presentation from respected behavioural economist, Roger Martin Fagg for an update and review of the economy. We cover inflation, politics, budget and more to come up with a 2023 economic forecast. Read on to learn more!

Inflation:

World rate of inflation falling everywhere apart from UK.

UK property transactions down to 90k pcm. (but will be up to 95k by the middle of the year).

Truss spooked the market last year, but trust and confidence is returning.

Nominal house prices staying the same in 2023.

Believes interest rates have peaked at 4.25%.

Forecast real growth of 1% -1.5% and no recession.

2024 will see things back to normal as per pre covid.

Believes there isn’t enough money supply going into the world economy to sustain 10% inflation. This rate will naturally fall.

The cost of shipping a 40ft container from Asia to the US. It peaked at $9k in 2022 and is now down to $1,800. This saving can be passed on to the consumer.

The trade price of gas has now fallen to pre Ukraine invasion price. There is a lag of around 6 months before this reaches household prices. Therefore by Q3, fuel prices will be back to normal. The middle classes will pass these savings on through consumption of other goods and services.

Food price inflation expected to fall sharply in next 6 months. This will have a significant impact on RPI and CPI.

Conclusion – rapid reduction in inflation rates as year progresses.

Politics:

Brexit killed confidence – No investment since 2016 so productivity has stalled. The average American household is 45% richer than the UK households.

Political instability kills investment. 

British shoppers spent more in shops but bought less.

Hunt has steadied the ship. 30 year Gilts have recovered suggesting the international view of the UK has improved.

10 year gilt yield now sitting at pre covid levels meaning fixed mortgages will be circa 4.5/4.7%.

Banks:

25 banks fail per year in the US.

Credit Swiss has been underperforming for years.

UK Banks leveraged 20 times. It was 50 time in 2008 therefore no repeat of 2008.

NatWest will remain solvent unless 10% of its loans to go wrong. (In 2008 only 4% of loans went wrong!)

Mutual building societies a lot safer than a commercial bank.

The Budget:

Nice & boring – The beginning of sound government.

3m people in work are waiting for an operation. Large influx of labour force back into medicine to help ease this.

Hunt & Sunak have a real chance of winning the next election. (they didn’t in December!)

Forecast for the end of 2023:

Inflation – 5%

Earnings 5%

House Prices 0%

Base rate 4.25%

Unemployment 3.8%

Record year for insolvency and M&A as zombie business fail.

Housing transaction will return to 95,000 pcm ( and will improve again in 2024)