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Home Publications Blogs Beat the Press Strong Recoveries Ain't What They Used to Be: The Case of the U.K. and Simon Nixon

Strong Recoveries Ain't What They Used to Be: The Case of the U.K. and Simon Nixon

Monday, 21 October 2013 15:05

Simon Nixon appears nearly ecstatic over the what he terms the "strong recovery" in the United Kingdom. The problem is his notion of strong recovery doesn't fit the usual definition of the term.

According to the new upgraded growth projections from the I.M.F., which he highlights, the U.K. is projected to see 1.6 percent year over year growth in 2013. That would leave per capita income in 2013 about 6.0 percent below its 2007 level. The new upgraded projections show per capita income in the UK getting back to its 2007 level in 2018. Eleven years of zero rise in per capita GDP is certainly a new definition of success.

Even worse, this recovery is almost certainly not sustainable since it is being driven by a re-invigoration of the U.K.'s housing bubble. House prices in the U.K. are on average about 60 percent higher than in the U.S.. (In the mid-1990s they were about 10 percent less.) They are again rising rapidly driven in part by a policy of the Cameron government to promote homeownership that seems deliberately designed to re-inflate its housing bubble in advance of the election. Of course after bubble bursts we can expect another grand chorus of "who could have known?"

Comments (2)Add Comment
written by Jim, October 22, 2013 12:38

The author says real housing prices are falling in the UK and that supply is what they need. Can you flesh out why it makes more sense to look at relative pricing versus real? Tks
I guess it depends where you stand
written by sherparick, October 22, 2013 11:25
1. There is a Supply problem in Britain

2. A lot of the rise in house prices is driven by special circumstances of London and its role as "second" home for the wealthy of peripheral Europe, Russia, and the Middle East. (New York's housing market is also impacted by this international demand, but London, which has about 15% of the total population of the UK, has bigger impact on national statistics than New York has on total U.S. real estate prices.)

3. The low supply actually is an argument against a bubble, despite the bad affordability, rent, and income ratios. A sudden spurt in growth of supply, like what occurred in the U.S. in 2004-07, would flatten housing prices, and lead to the psychological moment when the Coyote realizes he has run off the cliff.


4. As the Cameron/Osborne/Clegg Government commit more economic malpractice in their drive to hold and maintain power. At some point in response Carney is going to have to take Bank of England away off the ZLB and raise interest rates in response to inflation. The pound will rise and exports will fall. The magic Minsky moment will be reached and the UK Government is going to have a real problem with all those guarantees and bad loans.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.