What caught my eye this week.
With Storm Babet tap-dancing across the flat roof of my extension, I wondered how I’d spend the windfall afternoon a cancelled trip to the provinces had gifted me.
(Broken British trains, as usual. Flooded, this time).
Obviously I chose to indulge myself by reading the new IFS Green Budget 2023 [1] with a latte whipped up with my infamous espresso machine [2].
Yes, I know how to party.
Here are five interesting charts from the report, with a few thoughts on each.
1. First some good news: lots of jobs
[3]
Two defining images from the TV broadcasts of my childhood are the AIDS iceberg, and long dole queues as three million languished unemployed.
Who says nothing ever gets better? The UK unemployment rate fell to its lowest level since the 1960s at 3.6% in early Spring 2023, although it has since rebounded to just over 4%.
True, there is shade you could throw on this achievement. Many in the UK are poorly-paid. Brexit has constrained the supply of workers, so while unemployment may be lower as a consequence, it’s also pulled down GDP growth. And lots of older workers apparently gave up working during the pandemic, which might be a good thing for some but others will live to regret it.
Still, I’d take those issues over millions feeling like they’re on the scrapheap.
2. Growing nowhere fast
[4]
Absentee workers are one potential reason why GDP growth has been so slow to rebound, after the Covid shock.
And while you’d normally expect labour markets to loosen in a sluggish economy, as we saw above they have tightened. As a result wages have actually been rising (albeit only very recently ahead of inflation) despite the foot-dragging economy.
Clearly the GDP break must mostly be a hangover from the Covid disruption: fewer workers than otherwise, people focusing on the less-productive ‘experience’ economy once we could go out again, snarled supply chains, and so on.
Moreover, to look at it glass half-full I suspect this weak performance will take the edge off any upcoming recession – which we’ve been promised for 18 months – if and when it finally arrives.
It’s harder to slump when you’re already slouching.
3. Won’t anybody think of the landlords?
[5]
Rental yield isn’t everything, as any How To Get Rich In Property seminar will tell you. The big money is made from capital gains.
And that’s true, but to get capital gains you either need to see more attractive underlying fundamentals – to boost the net present value of your asset – or you need more suckers – to buy off you in the future.
It’s hard to anticipate either in this graph. Bar a blip during the financial crisis, the last time the five-year gilt yield outpaced rental yields was the early 1990s. As interest yields fell, the buy-to-let boom took off.
True, a recession and/or lower inflation bringing interest rates down could change this picture pretty quickly.
But then again in that scenario you’d also enjoy a nice bump to the value of your gilts – and without a broken boiler or a defaulting tenant in sight.
4. Big Government is watching over you
[6]
There are many notable things going on in this pretty dispiriting chart. (Do highlight anything you feel is interesting in the comments below.)
However I’ll just note here the far chunkier blocks of fiscal support (the government giveth…) and taxation (…and taketh away) seen in the last few years
While I blame this long Conservative administration for many things since 2016, I don’t blame them for the pandemic. Nor would I particular criticise the big picture decisions they and others made to try to support the economy in 2020 and 2021.
At the micro-level in Downing Street it was clearly a shitshow. But when it came to the grown-up levers of power, every country was working without a rulebook.
I think it’s mostly unfair to blame either Central Bankers or politicians for the subsequent high inflation, for example. Nobody knew exactly what to do, nor what would happen – however it looks with hindsight.
Either way though, the result is that government has been much more directly and visibly impacting household incomes in recent years.
I can’t helping thinking that this will have long-term political consequences.
5. It’s a fix
[7]
Many Monevator readers will already know the UK has moved to a predominantly fixed-rate mortgage market, but it’s still striking to see it in a graph like this.
Indeed, given the centrality of property (and property prices) to British economic life, the changeover amounts to something of a quiet revolution.
If you’re wondering why we haven’t had a house price crash yet despite the speedy rise in interest rates, fixed rate mortgages abounding is a big reason.
(Another is that about a third of UK homes are now owned outright [8], with no mortgage. The third is the tight labour market we saw in the first graph).
Prices holding up despite higher rates is good for anyone who already owns their own home – and frustrating for those who can’t afford to do so.
But home buying aside, the nation’s mortgage holders continuing to remortgage onto higher fixed rates over the next couple years must surely be another dampener on economic growth.
I do also wonder what will happen if rates are cut sharply in, say, 2025? Presumably we’ll see lots of stories about homeowners being ‘stranded’ on 6% fixes!
Something to look forward to…
Anyway, there’s lots more to see in the IFS Green Budget [1] if these are your bag. Let me know if anything catches your eye in the comments below.
And have a great – wet and windy – weekend!
From Monevator
Review: Smarter Investing [9] by Tim Hale – Monevator [10]
Are Premium Bonds a good investment? – Monevator [11]
From the archive-ator: It’s too late to get into buy-to-let – Monevator [12]
News
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UK inflation holds steady for September… – CNBC [13]
…and here’s which goods and services have changed the most in price – Guardian [14]
Vanguard ‘satisfied’ LifeStrategy fund does not breach FCA’s concentration limits – ETF Stream [15]
Glasgow named the top UK city for first-time buyers – This Is Money [16]
Wine definition to be watered down in post-Brexit move – BBC [17]
House prices still rising – just – says ONS – MoneyWeek [18]
The strange death of corporate Britain [Search result] – FT [19]
What Poland’s surprise election winner means for the world – Politico [20]
[21]
The science of making people happier, not just wealthier or healthier – Vox [22]
Products and services
Energy firms ordered by Ofgem to improve customer service – This Is Money [23]
St James’s Place: exit fees are on the way out, what should customers do? [Search result] – FT [24]
Chorley BS offering 5.3% on ‘easy-access’ cash, but with big strings – This Is Money [25]
Open an account with low-cost platform InvestEngine via our link [26] and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [26]
The lasting impact of ID fraud [Podcast] – Which [27]
Get £50 free trading credit when you open an account with Interactive Investor [28]. Terms apply – Interactive Investor [28]
You can now use Tesco Clubcard points to pay for Brewdog pints – This Is Money [29]
£8 is the new £5.99: five rules for buying wine today – Guardian [30]
How much does the flu jab cost? – Be Clever With Your Cash [31]
Top energy-efficient homes for sale, in pictures – Guardian [32]
Comment and opinion
A few laws of getting rich – Morgan Housel [33]
High TIPS yields are a retirees friend [US but relevant] – Morningstar [34]
Crunch time for student buy-to-lets [Search result] – FT [35]
Money and happiness: lessons from lottery winners – Darius Foroux [36]
The missing billionaires [Podcast] – Talking Billions via PlayerFM [37]
How to invest during times of war – Of Dollars and Data [38]
Budgeting for random acts of generosity – Humble Dollar [39]
Why investors are buying gilts again – This Is Money [40]
This is the worst bond bear market in history – A Wealth of Common Sense [41]
In praise of slowness, in life and investing – Safal Niveshak [42]
Naughty corner: Active antics
The FTSE 250 is looking very cheap right now – UK Dividend Stocks [43]
Risk and returns, before and after the fact – The Diff [44]
Momentum is everywhere – Alpha Architect [45]
Kindle book bargains
The Panama Papers by Bastian and Frederik Obermaier – £0.99 on Kindle [46]
The Simple Path to Wealth by JL Collins – £0.99 on Kindle [47]
Mastering the Market Cycle by Howard Marks – £0.99 on Kindle [48]
The Power of Moments by Chip and Dan Heath – £0.99 on Kindle [49]
Environmental factors
How to make space-based solar power a reality [Search result] – FT [50]
Coca-Cola trial to make bottle tops out of CO2 emissions – BBC [51]
Yet another reason not to use ESG scores – Klement on Investing [52]
If you’re worried about the climate, move your money – The Atlantic [53]
EU to crack down further on micro-plastics after glitter ban – BBC [54]
Robot overlord roundup
Two friends spent $185 on an AI side hustle and sold it for $150,000 – CNBC [55]
After ChatGPT disruption, Stack Overflow lays off 28% of staff – Ars Technica [56]
Weight loss drug economics mini-special
Goldman Sachs: obesity drugs could be a $100bn market by 2030- Yahoo Finance [57]
MedTech stocks are in tumult due to the obesity-reduction drugs – Herb Greenberg [58]
Something is golden in the state of Denmark – The Atlantic [59]
How weight loss drugs could radically reshape the food business – Axios [60]
Ozempic is obviously good for business – Very Serious [61]
Off our beat
The Lincolnshire village honoured in every Disney movie since 2006 – BBC [62]
Burnishing a legacy – Humble Dollar [63]
How to make your mind maybe one-third quieter – Raptitude [64]
The secret life of the man who stole $3BN of Bitcoin – CNBC [65]
A skeptical review of Permacrisis [66] by Gordon Brown, Mohamed El-Erian, and Michael Spence – Guardian [67]
UK’s nuclear fusion site ends experiments after 40 years – BBC [68]
On coffee, the world’s favourite stimulant [Podcast] – Tim Ferris [69]
None of your photos are real – Wired [70]
Rishi Sunak, decorated hero of the war on motorists, is no match for a real conflict – Guardian [71]
Brunch is for assholes – We Are Gonna Get Those Bastards [72]
And finally…
“The two greatest enemies of the equity fund investor are expenses and emotions.”
The Little Book Of Common Sense Investing [73]
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