Why the outlook for Britain is truly dreadful – MoneyWeek

What’smore,thehousingmarketisstartingto“nose-dive”,asCapitalEconomicssaid。

NationwidereportedthatpricesfellforanunprecedentedeighthsuccessivemonthinJune,leavingthem6。

3%downonayearago,thefastestslidesince1992。

Mortgageapprovalsfornewhousepurchaseplummetedtoarecordlowof42,000inMay。

Yetmortgageratesarestillontherise,sofurtherfallsinapprovalslooklikely。

Throwintheweakeningoveralleconomyandlabourmarket,andtheupshotisthathousepriceslooksettofall15%thisyearand35%fromtheir2007peakby2010。

Troubleforhousebuilders

That’sgrimnewsforhousebuilders。

AccordingtoMerrillLynch,landpricesfallbyaround3%forevery1%declineinhouseprices,notedGeorgeHayonBreakingviews。

com。

Mostofthesectorwillhavetoraisecapitaltoavoidbreachingbankingcovenants,butthisweek’s“fiascoatTaylorWimpey”meansthatwillbeanuphillstruggle:itfailedtosecureadealwithshareholdersandpotentialnewinvestorstoraisearound£500m,andcouldbeinbreachofitscovenantsnextyearifthehousingmarketdoesn’trecover。

Whatnext?

Fallinghousepricesbodeillforconsumption,whichaccountsforthelion’sshareofGDP,aspeoplefeellesswealthyandnolongertaptheirhousesforcash。

WarnercitesresearchfromMorganStanley’sDavidMilessuggestingthata15%slideinhousepricesanda40%fallintransactionsthisyearcouldreducegrowthby3%,leadingtoarecession。

Transactionshavealreadyfallenbymorethan40%。

Withconsumersalreadygloomierabouttheeconomicoutlookthanatanytimeduringthelastrecession,thehighstreetissuffering:25%ofLondonretailersissuednegativesalesupdatesinthepastquarter,athree-yearhigh,saidGrantThornton。

MSreporteda5。

3%dropinlike-for-likesalesinthequartertolateJune,citingrapidlydeterioratingconsumerconfidence,whileCarpetrightfounderLordHarrissaidnextyearwillbeoneofthetoughestofhis50-yearcareer。

Britain,saysCapitalEconomics,isheadingfor“averypainfulperiod”。

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