Financial crisis? What crisis?

FIRST POSTED DECEMBER 12, 2008

Amid all the doom and gloom about the economy, it comes as a surprise to discover that quite a lot of people are suddenly and unexpectedly beginning to do well out of this downturn. Nor are they the much reviled hedge fund managers or, indeed, anything else to do with the City.

A friend who is a police superintendent recently told me that - to his amazement and thanks entirely to the severity of the recession - he has never had it so good. His wife is a part-time school administrator and with two secure jobs they do not have to worry about unemployment. Having bought their house more than ten years ago, the economic crisis had largely passed them by until recently.

Payments on their mortgage have halved and the shops are discounting heavily

Then the Bank of England started to slash interest rates, and suddenly my friend found that his family's purchasing power had rocketed. The payments on their tracker mortgage have almost halved and most of the things they want to buy in the shops can be had at a huge discount. Even petrol is down 25 per cent since the summer. To cap it all they have two public-sector pensions to look forward to, so they are not unduly worried about saving.

The only fly in the ointment is that the weak pound has pushed up the cost of foreign holidays. But with all the other good things that are happening to them he is confident that they will find the extra for their usual stint in the sun.

In economic terms, the important thing about my friend is that there are millions more like him. Forty per cent of all mortgages track the base rate, and over a quarter of all employees work for the public sector. Changes in interest rates - up or down - are usually reckoned to take between one and two years to feed through to the general economy.

This time, however, the cuts in both rates and prices in the shops have been so sudden and dramatic, that - at least for some lucky people - this process could be drastically foreshortened.

Economists and commentators have yet to focus on this group, which has really only emerged in the last few weeks. But assuming interest rates stay low for more than a few months, these unexpected recession winners could be crucial in helping to stabilise the economy.

FIRST POSTED DECEMBER 12, 2008

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This article, as with most on the issue, misses the real point, which is that the british people need to transition from living off credit, to accumulating savings. This will severely (and rightly) limit the ability of people to "spend" these conceptual gains. Of course some people will suffer more than others from this recession. A few will even benefit from the chance to acquire assets, that will, at some point, become undervalued (this hasn't happened by a long way yet). Overall however, we have in the UK a country that will bankrupt itself trying to maintain consumtion levels that are clearly unsustainable, and that has no substantive competitive advantage left as a manufacturer or service centre to pull itself out of it debt when more favourable economic conditions return. Most people will realise this over time and will not return to a culture of blind materialist consumption and instatnt gratification, but will start to think of the future, and will save.

Posted by Simon Martin at 10:51am on December 12, 2008

Brown's state parasites: doubtless faithful Labour voters.

Posted by Gervas Douglas at 11:14am on December 12, 2008

As yet, I have not established any reason for me to change my spending habits. It was not me that got us into this mess. I have worked for (76-17) years and do not see that I should lose any of the toys, style and pleasures that came from that life of hard work and honesty. I know a number of others like me.

Posted by John Wood at 12:23pm on December 12, 2008

Interesting article! We came off a fixed-rate mortgage recently and decided to leave it on the variable rate for a while. In the space of three months, we've gone from a monthly payment of 830 pounds to 630 pounds and may see it decrease still further. Of course, at some point it will go up again just as fast.

Posted by Polsonby at 1:08pm on December 12, 2008

My wife has been a Social Worker for the last 15 years and now earns just over Â£30k. It's a secure job alright but she has been spat at, has received death threats and has witnessed horrific child abuse, all in the line of duty. Smug? I don't think so.

Posted by Dabroo at 5:59pm on December 12, 2008

Mr Brown is a Socialist. So is Mr Darling. So are the rest of the politburo. What do you expect? Ever heard of Milovan Djilas who noticed that this is how Socialists behave. Or, indeed, Animal Farm where the pigs end up "more equal" and live in the farm house. Meanwhile the "fat cats" of private enterprise, the "kulaks" are persecuted and lose power, jobs, money. The pound, too, is at the same level as the Rouble in the 1980s. So this article, while true, does not surprise me at all.

Posted by prziloczek at 9:05pm on December 12, 2008