Editor's letter

Reasons to be cheerful

There's no shortage of doom and gloom about at the moment, says Merryn Somerset Webb. But it's not all bad news.

905-Abe-634
Good trade deals with the EU are possible

Go to the Office for National Statistics website, look for the latest UK House Price Index release, and you will see what we think is one of the most encouraging charts we've seen in a long time. It shows UK house prices flatlining. The average house price was £226,000 in May 2018, a little under 3% higher than in May 2017, and unchanged from last month. Move then to the inflation figures and you will see that annual CPI (consumer price index) inflation is sitting at 2.4% and the old RPI (retail price index) inflation measure is at 3.4% (for more, see our cover story this week on the oil price). Next, look to the latest wage numbers: regular wages are rising at an annual rate of about 2.7%.

Taken alone, none of these numbers are particular exciting. Add them up and they might be. If we have a dream at MoneyWeek, it is to see house prices flatten out in nominal terms, and fall slightly every year in inflation-adjusted (real) terms something that would limit the pain for those with big mortgages,but also make houses more affordable for new entrants. The house-price growth and inflation numbers taken together suggest this might just be beginning to happen. Add in the (still-slight) rise in real wages, and the affordability trend looks as though it is going in the right direction for the first time in a long while.

We have hopes, too, that real wages will soon be rising at more than the 0.2-0.3% a year that they are currently. That's firstly because the market is so tight (the unemployment rate is at the lowest it has been since the mid-1970s,at 4.2%), but also because there is a chance that productivity (the real driver of wages) will soon start to rise again. That's because a decade-long trend for employers to hire hordes of cheap and easily available workers, instead of investing in automation, is coming to an end. The new scarcity of labour is driving investment, which should drive productivity and then wages. Hooray! (See here for more on this.)

There is more good news around this week. The EU-Japan trade deal is a nice example. This is happy evidence that the world is not going to hell in a protectionist hand-basket; that it is possible to make good trade deals with the EU; and that cheaper Japanese soy sauce in the West is a near-term possibility (who knew the EU imposed a 7.7% tariff on the import of soy sauce?).Then there is Brexit. You could see the endless rows of the last few weeks as proof that the whole thing is a miserable fiasco. You could also see them as democracy in action and therefore vital stepping stones on the long and boring path to the inevitable compromise deal. I see them as the latter.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Being unpopular can make life easier for companies – just ask BP and HSBC
Investment strategy

Being unpopular can make life easier for companies – just ask BP and HSBC

When you're as hated as banking and the oil sector, it doesn't take much to pull off a nice surprise. John Stepek explains what that means for investo…
27 Oct 2020
Is London’s office market a bargain?
Property

Is London’s office market a bargain?

Private-equity groups are swooping on London’s property companies, which are trading on steep discounts to net asset value.
23 Oct 2020
Big spending government is here to stay – just ask Rishi Sunak
UK Economy

Big spending government is here to stay – just ask Rishi Sunak

Governments around the world are splashing huge amounts of cash as they do “whatever it takes” to prop up their economies. John Stepek looks at where …
23 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020