IT’S hard to be certain about the fundamental causes of the recent stock market volatility at home and abroad.
The FTSE-100, Dow Jones and other national indices have fallen sharply one day, only to recover the next. The global markets at the end of August were roughly where they were at the start of that month.
Part of the difficulty in making any sense of the market volatility is that August is traditionally a slow month. City and Wall Street dealers are away on their holidays, making trading volumes thin. Thin conditions can exaggerate price movements, thereby generating volatility.
The data that supports the swings and roundabouts has painted an inconsistent picture. Just this week, for example, the Purchasing Managers’ Index (PMI) for the service sector gave a gloomy reading, suggesting growth in the UK economy would be slower than expected. On the other hand, August’s car sales were yesterday reported as rising 7%.
What is clear is that the UK economy is not booming. There are no signs yet of a return to strong growth. The CBI has this week revised down its forecasts for GDP growth for this year from 2.2% to less than 2%. CBI director general John Cridland is now calling on the Government to revise its strategy for stimulating the British economy. In particular, he wants to see a reduction in top rate tax and cuts to employment-related taxes. He has also called for the Government to expedite investment in transport infrastructure and to stimulate house construction.
Indeed, the CBI argues that increased house construction could be made a key lever for economic growth.
He is right about this. The potential economic impact of the housebuilding sector has been overlooked for decades by governments of both colours.
Restrictions imposed on planning approvals for new homes have curtailed UK economic growth for decades. It’s a bizarre own goal from the point of view of economic management.
Homes are the principal object of consumer spending in this country. Buying, extending, repairing, refurbishing and furnishing them accounts for a huge proportion of household expenditure. The housing market is, therefore, a very obvious potential source of stimulus.
More importantly, new house building serves a social purpose. We need enough new homes to give us all a roof over our heads. That roof needs to be adequate for the purposes of the occupants under it. A family house, for example, needs to be big enough to allow children space to play, sleep and study.
The green belt policy and other planning restrictions implemented over previous decades have prevented an adequate supply of new homes coming to market.
The restrictions have helped push house prices to unaffordable levels for those who don’t already have a foot on the housing ladder. This has deeply compromised the ordinary course of life for millions of young people, who, unable to afford a home, have not started a family or postponed it till late in life, sometimes too late in life, or had just one child.
That’s why the Government’s proposals to simplify planning rules and to encourage more house building are to be welcomed. We need all types of housing, not just social homes.
While we must avoid the pitfalls of sprawl and also protect areas of outstanding beauty or special scientific interest, we also need to find a habitat for that increasingly endangered species, the young British family.
