The UK Crunch May Not Arrive – MoneyWeek

Tobefair,itisdifficulttobebullish(andeasytobebearish)ontheUKconsumer,giventhewell-knownandoft-observedissuessuchasoverleverageandsensitivitytohousing。

Thatsaid,wheneveryoneisbearish,andwhentheglobaleconomyappearstobeenjoyinganupturn(albeitonethatislikelytobeshortlived)oneshouldconsiderthealternatescenariosandthefactthateventsintheUKhaveunfoldedmorefavourably(oralternately,notquiteasbadly)thanthebearswouldhaveusbelieve。

Clearly,theChancellorhasbeenfortunateenoughtochangehisviewonthetimewhenthisbusinesscyclebegantheupshotofwhichconvenientlyenableshimtodefer(orpotentiallyavoid)fiscaltighteningthroughspendingcutsortaxrises。

Thisremovesapotential,andpreviouslyexpected,dragonUKgrowthin2006。

ChangesinmarketexpectationshavealsoavoidedsomefurtherpainfortheUKconsumerthisyear。

Essentially,bearishexpectationsontheconsumerhavehelpedtostabilisetheoutturn。

Recalltheenvironmentin2003。

Equitymarketswereontheirknees,withtheFTSEbelow3300(morethan35%belowcurrentlevels),bondyieldswerecollapsing,andthebearswereintheirelement。

Thatyear,£100bnoffixedratemortgagesweretakenout,atrecordlowratesaslowas3。

5%。

Mostpeople(around80%)whotakefixedratemortgagestakethemfortwoyears,meaningthat2005sawsomenervoushomeownerseyeingthelatestdealsandcalculatingtheextrapaymentstheywouldbedue。

Therecentturnininterestrateexpectationshas,tosomeextent,easedthepainoftherefinancingcycle。

TheCassandrasarewailingbut,believeitornot,theyarestillwaitingforthecrunchtoarriveand,givenanimprovingexternalbackdrop,depressedexpectations,andgradualneartermimprovementinunderlyingconsumerdataflow,theywilllikelybefrustratedonceagain。

ByPaulNiven,HeadofStrategyatFCAssetManagement

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