Supply Shortages Hit Recovery

The UK services #PMI hit a 6-month low in August (55.0) with supply shortages contributing to slower growth. Meanwhile, staff recruitment picked up to a 25-year high, but competitive labour market conditions led to steep wage pressures. Read more: https://t.co/Sc26NQB2AQ pic.twitter.com/Ptw495FqMd

— IHS Markit PMI™ (@IHSMarkitPMI) September 3, 2021

In the medium term the supply shortages will be resolved by market forces and retraining. However, in the short term, prices driven by rising wages will increase and there will be supply disruptions.

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Wage Growth 3.1% - Fastest In Ten Years

As per the ONS

• Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 3.1% excluding bonuses, and by 2.7% including bonuses, compared with a year earlier.
  
  
• Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.7% excluding bonuses, and by 0.4% including bonuses, compared with a year earlier.

The number of people in work remains at a near-record high, while the unemployment rate is at its lowest since the mid-1970s

Dark Days Coming

Yesterday's lousy "growth" figures (a fall of 0.5% in GDP) have heralded further bad news. Minutes from January's MPC meeting show that two members voted for an increase in rates, they must be mad.

The mood of gloom surrounding the economy was further depressed by a speech made last night by Mervyn King (Governor of the Bank of England), in which he said that wages will have to fall and that we are facing the worst economic conditions for 90 years.

I wonder if George Osborne has actually factored all of this into his economic plans?

Wage Rises Highest Since 1998

Salary inflation has reached its highest level since May 1998.

That is the finding of the report on jobs by the Recruitment & Employment Confederation and KPMG.

Michael Carter, people services partner at KPMG, said:

"July's survey results continue to reflect a buoyant labour market.

The availability of staff has deteriorated at the fastest pace for over two years and employers need to continue to be creative in their recruitment strategies."

Permanent salaries, as measured by an index, increased to 65.3 from 64.2.

This will increase pressure on the Bank of England to raise interest rates at least one more time this year.

Bonus Time

In the run up to Christmas, many people's credit cards are maxed out as they scrape their resources together to fund the feast of indulgence and revelry, spare a thought for the poor souls in the Square Mile.

It is now bonus season, where the select few can reap mind boggling sums on top of their annual salaries.

The Goldman Sachs bonus is reported to be an average of over £300K for every employee. This is nothing compared to some, figures in excess of £1M are paid to the real high flyers in the City.

The annual bonus round this year is expected to yield a bumper harvest. This in turn is expected to further stoke the housing bubble of London's over-stretched property market.

The question is, are these bonuses sustainable or justified?

The Big Mortgage

It seems that in order to prevent Britain's already dangerously inflated housing bubble from bursting, mortgage lenders are creating ever more dangerous products with which to ensnare the unwary and desperate house hunters.

Abbey have created a mortgage product which people may well regret buying into. Abbey has become the first major bank to lend first-time buyers five times their salary, for their first house purchase.

Lloyds TSB's Scottish Widows Bank have also confirmed that it offers mortgages of up to five times salary, in its professional and graduate packages. However, this is only for individual borrowers, the maximum a couple can get is four times earnings.

Last week, Bank of Ireland Mortgagees and Bristol and West increased their standard lending multiples from four to 4.5 times earnings.

Abbey, will now lend £300,000 to a single customer or two people with a good credit record and a total income of at least £60,000.

Abbey is making the offer available to individuals, couples, or two people not in a relationship who have a 25% deposit.

The maximum Abbey will lend a borrower for a standard mortgage is £2M.

Not surprisingly some people are warning against this product. Malcolm Hurlston, chief executive of the Consumer Credit Counselling Service said:

"For some people this is going to look like an answer to their prayers but it risks taking them into dangerous territory.

If their salaries do not go up in the way they think, then they are going to be very stretched."

An Abbey spokesman said:

"It's a real shift within the industry.

Our research shows that affordability is the biggest barrier to people's ability to get onto the property ladder.

This is very much about looking at an individual's ability to pay."

Abbey's research showed that 17.3 million adults are not able to get on the property ladder with 7.4 million citing house prices as a key obstacle.

Recent house price surveys have put the inflation at between 8%-10%.

That is all very well. However, at some stage the ongoing price rises will stop and those who bought in on the expectation of being to sell at a profit, thus clearing the debt, will be in for a rude awakening.