Cover of MoneyWeek magazine issue no 797. Friday 10 June 2016

How precarious is Britain's property market?

8 June 2016 / Issue 797

If you’re looking for value in UK property, the pickings are slim – prices are soaring back to unsustainable levels, says John Stepek. Read this week's cover story here.

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Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

Brexit could be good for trade

Here’s something you think is a fact. The single market is good for the UK. We can debate the extent to which leaving it will hurt our exports, but there is no doubt that, in the short to medium term at least, it will hurt our economy. That’s one big reason why voting to leave the EU is risky. But is this actually true? Everyone says it. We all believe it. But where’s the evidence? It might surprise you to know that there isn’t much.

In his book Myth and Paradox of the Single Market (you can view it on the Civitas website), Michael Burrage runs through his search for some, and then his attempt to build it for himself. His research involved comparing trade deals done by the EU with those concluded by economies outside the EU (Switzerland, Chile, South Korea and Singapore) to see who comes off best.

The results are surprising. None of these countries have the same assumed “clout” as the EU. But all have done rather better at producing free-trade areas for their exporters. Since 1970 the EU has concluded 37 agreements. The total GDP of the countries involved as of January 2014 is $7.7trn (they have been mostly with small countries). By contrast, the aggregate GDP of all the nations with which Chile had deals in force is $58.3trn; for Korea, it’s $40.8trn; Singapore, $38.7trn; and for Switzerland, $39.8trn.

All four have deals with the EU (GDP $16.7trn), but even once you take into account the obvious point that all EU countries have automatic deals with one another, the difference is stark – particularly given that 90% of the deals made by these “four smaller independent countries” include services, whereas only 68% of the single market deals do (which matters particularly for the UK).

Burrage also looked at the speed of growth in UK exports to relevant countries in the years before and after trade deals have come into force. This doesn’t look good either. In most cases, the rate of growth post-agreement has fallen.

The only “clear success stories” (ie, in which the rate of growth has risen) are Turkey, Chile, Lebanon, Papua New Guinea and Fiji. “Their total GDP in 2015 was $1.1trn, which is significantly less than the $1.5trn GDP of Australia with which the European Commission has yet to negotiate an agreement.” So has ceding our right to make our own trade deals to the EU been good or bad for UK exporters? It’s not quite as straightforward as you thought.

The same is true of a lot of the arguments around the EU. For more on this, look to John Stepek’s piece on the UK property market this week. Popular wisdom says that house prices will fall on Brexit. John points out that if there is a genuine financial panic post-Brexit (which, by the way, is very unlikely), interest rates will not rise, but fall. Given that the main driver of UK house prices is cheap credit, a fall in rates hardly suggests we will see Armageddon in the housing market. Wanting freer trade could be a really good reason to vote out. Wanting lower house prices isn’t.