Recently, I looked at the reasons why house prices aren’t going to collapse this year, from falling mortgage rates to the strong labour market.
But there’s another factor at play, one that is harder to measure in a purely financial sense.
Confidence.
There’s no question consumer confidence took a bit of mauling last year.
But recent evidence suggests consumer confidence is back. The new survey from accountancy firm Deloitte indicates consumer confidence turned a corner at the end of last year after five consecutive quarters of decline.
There was improved sentiment on household disposable income (and why not, with wages for private sector workers rose at near-record highs at the end of last year). Sentiment among consumers rose in the last three months of 2022 as they became more positive about the state of the economy. Confidence improved by 0.6 percentage points compared with the previous quarter. There are indications of strong demand for travel in the first three months of 2023.
The tone of the mood music is beginning to change.
As Roger Bootle, one of the City’s leading economists, has pointed out, the economic travails we have seen in the UK have been global in nature and now, European economic data is becoming more optimistic. “It has long seemed that France was well positioned to avoid a recession but in the last week the German Chancellor, Herr Scholtz, expressed confidence that Germany would also avoid a recession this year,” he said recently. “Given the importance of manufacturing to the German economy and the damage that sky-high energy prices have done to manufacturing, that would be quite something.”
And on the global economy, it’s clear the Davos fraternity overwhelmingly believes in a soft-landing.
These international developments are starting to suggest things may be improving in the UK. Indeed, Goldman Sachs, the investment bank, says it thinks the economy will return to growth with 1 per cent pencilled in for next year. And analysts at JP Morgan, the American bank, believe that the fall in wholesale gas prices indicates that the economy will shrink by less than previously expected — because it will ease the burden of energy bills for households and businesses. They said recently that GDP would contract by 0.1 per cent this year, down from their previous estimate of a 0.3 per cent decline.
The domestic economy is demonstrating remarkable resilience.
We can see this in some of the regional house price data. While the lowest annual percentage changes were in London (where prices increased by 6.3% in the year to November 2022), according to the latest house price index from HMRC, released on the 18th January, it’s a very different story away from the capital. Prices in Birmingham are up 12.7%. Average prices in Manchester are up 12.9%. The average price of a property in Liverpool has climbed to £184,447, up 13.2% in the year to November 2022 (and it’s worth noticing that the month before, HMRC was still seeing local prices rising by 11.1% year on year in Liverpool — the degree to which prices are are rising in increasing).
Things are a bit better than seemed likely just a short while ago.
Helena Marston, Chief Executive of Purplebricks