DCSIMG

Bill Jamieson: Building recovery, brick by brick

Reform of planning procedures would help get more homes built. Picture: Getty

Reform of planning procedures would help get more homes built. Picture: Getty

JUST when we thought the economy was turning a corner, it has run into another one. If the latest disappointing indicators were not enough to prompt Chancellor George Osborne to beef up his 5 December Autumn Statement, a shedload of data out this week should give him a sharper picture of where we are going – or more accurately, where we are not.

Inflation, retail sales and unemployment numbers will figure prominently over the next few days.

Optimism over that bigger-than-expected third-quarter one per cent jump in GDP has evaporated. In the words of Colin Edwards at the Centre for Economics and Business Research, “the good news has failed to keep on coming”.

The picture is by no means totally bleak: inflation has fallen to 2.2 per cent – further than most expected; unemployment south of the Border has continued to fall; and there are tentative signs that bank lending to businesses and households is picking up.

But it is glacial progress – all the more discouraging given the £375 billion of quantitative easing, the low interest rates and the clutch of measures in the last two budgets that were designed to stimulate enterprise.

On the positive front, the UK’s deficit on trade in goods and services tumbled from £4.3bn in August to £2.7bn in September – a better-than- expected outcome. An £8.4bn deficit on goods was partially offset by a £5.7bn surplus on services.

And – superbly timed from the Chancellor’s view – came news that the Bank of England will transfer to the Treasury some £35bn of income from gilt-edged stock the Bank bought in its QE programme.

The cash will be used to reduce government debt and will work in effect as a mini QE. Citigroup economist Michael Saunders says the reduction in the debt/GDP ratio may just about be enough for the Office for Budget Responsibility to project that the government will probably hit its target of a falling debt/GDP ratio in 2015/16 “whereas previously that appeared out of reach.’

However, evidence has mounted in the past few weeks that there is little by way of a follow-through from that third-quarter pick-up – and the suspicion is that this downbeat data came too late for the Bank’s monetary policy committee to shift its assessment to hold back on more QE in the wake of the third-quarter GDP figures.

Industrial production slumped 1.7 per cent month-on-month in September. Manufacturing output rose marginally in the month, although this has been superseded by weak October survey data from the CBI and purchasing managers. On top of this came a disappointingly soft British Retail Consortium survey for October and a 0.7 per cent drop in house prices reported by the Halifax.

Particularly disappointing were latest figures on construction output. This fell 2.8 per cent month-on-month in September and is down 13.1 per cent year-on-year. The construction recession has been of particular concern in Scotland. The latest output drop followed a decline of 0.4 per cent month-on-month in August. And survey evidence on construction does not suggest a recovery any time soon.

Cutbacks in capital spending and the preference of politicians to slash investment spending while maintaining vote-earning social and welfare programmes are largely responsible. But planning bottlenecks are also to blame.

We are not in Scotland as “shovel ready” as the administration would like us to think. Data out last week showed that builders face an average delay of almost 77 weeks for major housing applications – more than a year longer than the 16 week statutory timescale.

Glasgow has two major applications that have taken 62.9 weeks to process, while Edinburgh, where the city’s disastrous tramway project has gummed up the city centre for four years, has five major housing applications that have taken 119.5 weeks to process.

The figures confirm suspicions of a planning system that is stifling new house-building. The figures were described as an “outrage” by Homes for Scotland.

“Scotland”, says Allan Lundmark of HfS, “is in the midst of its worst housing crisis since the Second World War with a total of only 15,000 new homes built in 2011 despite 160,000 people being on housing waiting lists. These figures support our own internal research and confirm that the planning system is strangling rather than facilitating what little investment is available.”

The focus now switches to fresh data this week. Inflation is likely to move up from the 34-month low of 2.2 per cent in September as higher utility charges and food prices kick in. And latest figures on unemployment may show an easing of the improving trend of recent months. As for retail sales, these are likely to have been essentially flat last month, supporting the view that consumers are still being careful in their spending, despite the recent improvement in their purchasing power.

The Bank of England Quarterly Inflation Report for November also due this week will be scrutinised for clues as to whether the Bank will resume more stimulative action over the coming months. After last week’s “pause” decision on QE, market opinion seemed to have swung round to the view that the Bank will not undertake any more asset purchases. But this may prove premature. MPC member Spencer Dale, who has expressed doubts about the effectiveness of QE, has indicated that he is unwilling to rule out the Bank’s undertaking more asset-buying. The November pause may also have been decided on to allow more time for signs of the Funding for Lending scheme to show through. So a further £50bn of QE could well be on the way in December or January.

As for the Autumn Statement, the plight of the construction industry may well tip George Osborne into a temporary reduction or suspension of VAT on home improvements and extensions.

Treasury old hands will warn that this will be seized upon as precedent-setting. But the case for action to revive construction in the wake of latest figures is compelling.

 

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