UK Economics Services
Highlights
The outlook for commercial property
The commercial property market was one of the areas to suffer most from the onset of global recession in the first half of 2008 with capital values and leasing activity falling sharply. However, as the economic outlook stabilised in mid-2009, so did real estate indicators and the past six months has seen a strong recovery. But given the weak economic backdrop and the need to refinance a large proportion of existing loans over the next few years, significant question marks remain over the sustainability of the upturn. In our view the bigger risks are all on the downside and with the fundamentals remaining unsupportive it is difficult to see how the recent bounce can be sustained.
19 February 2010
How should the government fill the fiscal black hole?
Though the recession has wreaked significant damage on the public finances, most of the deficit is structural and will remain in place even as the economy recovers. Significant policy tightening will be required after the spring election, regardless of which party takes power. A political consensus has formed that cuts in public spending will form the bulk of the fiscal tightening and past experience suggests that this is the most effective method of reducing the deficit without unduly harming the wider recovery. But given the scale of the deficit, it is unlikely that tax increases can be avoided. Timing will be crucial - an overly abrupt fiscal tightening could cause the economy to relapse, but unnecessary delay in taking action would increase the risk of a credit downgrade and could require an even greater fiscal adjustment in the future.
18 January 2010
Why has unemployment not risen more in the recession?
The recession has resulted in the steepest fall in UK GDP since the 1930s yet the decline in employment has been surprisingly modest. This experience has been very different to that of the US where a less severe GDP fall has been met with much steeper cuts in employment and hours and a sharp rise - rather than a fall - in labour productivity. Part of the story is continued growth in public sector employment, but strong trends in profitability and a weak pound have also helped to mitigate the impact on private sector employment. The analysis is complicated by the possibility of measurement errors. The severity of GDP declines in past recessions has often been revised down in subsequent estimates and there is a possibility that the LFS exaggerates the current level of employment. If official data are correct then there will have to be a period of flat employment to allow labour productivity to return to trend. If the data are exaggerating the extent of the fall in labour productivity, the prospects for employment growth look much better.
18 January 2010