Winners and losers from the housing crash

Karen Ward, UK economist at HSBC, takes over from Stephen King in the Independent’s Monday economics column this week and her attention is focused on the asymmetric effects of the housing slump. The Bank of England seems set to keep rates on hold for a few months to come (the inflation numbers out this week could be horrendous) and their unwillingness to match the US in aggressive interest rate cuts is built partly on a different belief in how the housing market feeds through to the real economy. But Karen Ward is sceptical that the re-balancing of the UK economy away from consumption towards investment and exports can happen when the Euro Zone economy is weakening so rapidly. Emerging market economies are unlikely to be much help - only 3% of UK exports go to China, India and Russia.

An excellent piece for AS and A2 economists - available here

In a similar vein, the team at Deutsche Bank released a report hinting that the Euro Zone economy and the UK are both likely to go into recession:

“The large trade exposure that each has with the other should reinforce this external drag. Domestically, declining housing markets, the credit crunch and de-leveraging have to be absorbed by both economies. For consumers, we are not convinced that lower commodity prices will outweigh tighter credit, negative wealth effects and weaker labour markets.”