Making predictions about what’s likely to happen during the next 12 months is never easy – there’s no real science to it and despite what Mystic Meg tells you crystal balls with magical powers are all the stuff of fiction.
So what will 2011 bring?
The UK economy
“The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while.”
That’s a quote from Bank of England Governor Mervyn King which was delivered on the eve of the 2010 Comprehensive Spending Review.
Chancellor George Osborne's Comprehensive Spending Review launched the UK economy on what Osborne himself termed "a hard road" through the remainder of this Parliament (with the next general election scheduled for Thursday 7 May 2015). It also ushers in what King hailed as the "SOBER" decade. King offers the following acronymical definition of "sober": "savings, orderly budgets, and equitable re-balancing."
It remains to be seen if Osborne's strategy will prove successful in helping rebuild the UK economy in the aftermath of recession.
There is a distinct possibility Osborne will help usher in “QE2” – a new programme of quantitative easing in 2011 and while we are likely to avoid slipping back into recession growth will be slow and moderate.
The UK housing market
With a severe lack of lending constraining the market still house prices are likely to remain subdued on a national average, with small pockets enjoying growth as cash buyers prop up more exclusive property areas.
If the lending tap can be turned on the prices should see some moderate growth but again this will be area specific.
The market for those with a large amount of spare cash should continue to offer good value with sellers forced to listen to offers below their asking price.
This is also likely to increase following the spending cuts in the New Year as some regions will be hit much harder than others.
The UK jobs market
This will be the Coalition’s biggest test yet. The Consumer Spending Review job cuts have the potential to destroy entire communities reliant on public sector employment. The Coalition is taking a massive gamble expecting the private sector to pick up the pieces. If they can pull it off then Osborne’s austerity plans will go down in history as being one of the finest economic reworkings ever undertaken.
If they get it wrong, we could well be heading for a General Election as early as Q3 next year as the Coalition falls apart and Prime Minister David Cameron loses the confidence of the House of Commons and possibly the people of the UK.
The credit and borrowing markets
2011 should see even more new mortgage lenders join the party but as with 2010 it’s unlikely that they will bring with them enough “new money” to make any material difference. We’d expect the securitisation markets to continue to open up, albeit at the same rate as this year.
Overall, lending should start to see some small improvements but that has to be taken in the context of where we are now. Expect the current situation to improve but don’t imagine the floodgates opening any time soon. Remember, as Mervyn King said, we can expect this financial hangover to last for a long time yet.
The World Economy
This has to be the daddy of all predictions. A two-speed recovery is likely to remain a feature of the global economy throughout 2011.
Nearly every country in the world experienced a slowdown in growth towards the end of 2010 and this is likely to be the case for the first half of 2011.
However, the global recovery should pick up steam in the second half of the year, as some of the worst-hit sectors (housing and autos) rebound and as consumer and business confidence improves.
Keep an eye on the Eurozone and what’s happening over there. The Euro is in crisis at the moment and there’s a good chance that it won’t make it to the end of 2011. So, expect more expats to come back to Blighty and fewer to head off to the sun kissed beaches of the Costas and the Algarve.
WikiLeaks could well bring a few financial skeletons out of the closest with its promise to release information in the New Year of an “bigger than Enron” scandal. Depending on the content of that information, that’s a promise that could have devastating consequences for the global economy.
Overall, expect three key themes to 2011. A slow start to the year, mild panic as the spending cuts hit home but a softening towards the end of the year as confidence continues to grow.
So how did we get on last year?
Last year we made a number of predictions – some completely spot on and others a little wide of the mark
The UK economy
We said that given that 2010 was going to be an election year we’d have a dithery start until a new government came into power. Well we were right on that point but we never foresaw the coalition government or the implications that would bring. It’s not exactly been the positive air of certainty we were expecting but the coalition has added some stability to the wider financial markets.
We rightly predicted that the Bank of England would have a large part to play when it came to the state of the economy but also thought that the Bank would have stopped its program of quantitative easing by now.
The UK housing market
We were bang on the money when it came to what we expected to happen to the UK housing market: prices would bubble along until after the election; home information packs would be scrapped; more confidence would return; more new entrants would help recovery gather pace; and that the regulator would implement more controls to limit the growth of new lending, keeping a lid on any potential housing bubbles.
The UK jobs market
We expected slight improvements throughout 2010 and to that end we were correct, also expecting the new government to bring new opportunities for enterprise, investment and job creation.
The unemployment rate did indeed edge down by 0.1% to 7.7% in the three months to August but the number of long term unemployed has shot up – from 612,000 a year ago to 821,000 now – something we didn’t foresee.
The credit and borrowing markets
We expected several new mortgage lenders to come to the market in 2010 and they have done, also correctly forecasting that they wouldn’t have the clout to get us out of the lending rut.
Unfortunately we predicted that overall mortgage lending would go up slightly yet today it’s at its lowest ever level for over 20 years.
The World Economy
We said that we’d all learnt over recent years that being part of a global economy means that when one country sneezes it’s easy for us all to quickly catch a cold and predicted that 2010 wouldn’t be any different. The current crisis in the Eurozone and the massive bailout Ireland received at the end of last year underlines our thinking here.
But what do you expect 2011 to bring? Use the comment box below and let us know what you think.
