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Weekend reading: five interesting charts from the IFS Green Budget 2023

What caught my eye this week.

With Storm Babet tap-dancing across the flat roof of my extension, I wondered how I’d spend the windfall afternoon a cancelled trip to the provinces had gifted me.

(Broken British trains, as usual. Flooded, this time).

Obviously I chose to indulge myself by reading the new IFS Green Budget 2023 with a latte whipped up with my infamous espresso machine.

Yes, I know how to party.

Here are five interesting charts from the report, with a few thoughts on each.

1. First some good news: lots of jobs

Two defining images from the TV broadcasts of my childhood are the AIDS iceberg, and long dole queues as three million languished unemployed.

Who says nothing ever gets better? The UK unemployment rate fell to its lowest level since the 1960s at 3.6% in early Spring 2023, although it has since rebounded to just over 4%.

True, there is shade you could throw on this achievement. Many in the UK are poorly-paid. Brexit has constrained the supply of workers, so while unemployment may be lower as a consequence, it’s also pulled down GDP growth. And lots of older workers apparently gave up working during the pandemic, which might be a good thing for some but others will live to regret it.

Still, I’d take those issues over millions feeling like they’re on the scrapheap.

2. Growing nowhere fast

Absentee workers are one potential reason why GDP growth has been so slow to rebound, after the Covid shock.

And while you’d normally expect labour markets to loosen in a sluggish economy, as we saw above they have tightened. As a result wages have actually been rising (albeit only very recently ahead of inflation) despite the foot-dragging economy.

Clearly the GDP break must mostly be a hangover from the Covid disruption: fewer workers than otherwise, people focusing on the less-productive ‘experience’ economy once we could go out again, snarled supply chains, and so on.

Moreover, to look at it glass half-full I suspect this weak performance will take the edge off any upcoming recession – which we’ve been promised for 18 months – if and when it finally arrives.

It’s harder to slump when you’re already slouching.

3. Won’t anybody think of the landlords?

Rental yield isn’t everything, as any How To Get Rich In Property seminar will tell you. The big money is made from capital gains.

And that’s true, but to get capital gains you either need to see more attractive underlying fundamentals – to boost the net present value of your asset – or you need more suckers – to buy off you in the future.

It’s hard to anticipate either in this graph. Bar a blip during the financial crisis, the last time the five-year gilt yield outpaced rental yields was the early 1990s. As interest yields fell, the buy-to-let boom took off.

True, a recession and/or lower inflation bringing interest rates down could change this picture pretty quickly.

But then again in that scenario you’d also enjoy a nice bump to the value of your gilts – and without a broken boiler or a defaulting tenant in sight.

4. Big Government is watching over you

There are many notable things going on in this pretty dispiriting chart. (Do highlight anything you feel is interesting in the comments below.)

However I’ll just note here the far chunkier blocks of fiscal support (the government giveth…) and taxation (…and taketh away) seen in the last few years

While I blame this long Conservative administration for many things since 2016, I don’t blame them for the pandemic. Nor would I particular criticise the big picture decisions they and others made to try to support the economy in 2020 and 2021.

At the micro-level in Downing Street it was clearly a shitshow. But when it came to the grown-up levers of power, every country was working without a rulebook.

I think it’s mostly unfair to blame either Central Bankers or politicians for the subsequent high inflation, for example. Nobody knew exactly what to do, nor what would happen – however it looks with hindsight.

Either way though, the result is that government has been much more directly and visibly impacting household incomes in recent years.

I can’t helping thinking that this will have long-term political consequences.

5. It’s a fix

Many Monevator readers will already know the UK has moved to a predominantly fixed-rate mortgage market, but it’s still striking to see it in a graph like this.

Indeed, given the centrality of property (and property prices) to British economic life, the changeover amounts to something of a quiet revolution.

If you’re wondering why we haven’t had a house price crash yet despite the speedy rise in interest rates, fixed rate mortgages abounding is a big reason.

(Another is that about a third of UK homes are now owned outright, with no mortgage. The third is the tight labour market we saw in the first graph).

Prices holding up despite higher rates is good for anyone who already owns their own home – and frustrating for those who can’t afford to do so.

But home buying aside, the nation’s mortgage holders continuing to remortgage onto higher fixed rates over the next couple years must surely be another dampener on economic growth.

I do also wonder what will happen if rates are cut sharply in, say, 2025? Presumably we’ll see lots of stories about homeowners being ‘stranded’ on 6% fixes!

Something to look forward to…

Anyway, there’s lots more to see in the IFS Green Budget if these are your bag. Let me know if anything catches your eye in the comments below.

And have a great – wet and windy – weekend!

From Monevator

Review: Smarter Investing by Tim Hale – Monevator

Are Premium Bonds a good investment? – Monevator

From the archive-ator: It’s too late to get into buy-to-let – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

UK inflation holds steady for September… – CNBC

…and here’s which goods and services have changed the most in price – Guardian

Vanguard ‘satisfied’ LifeStrategy fund does not breach FCA’s concentration limits – ETF Stream

Glasgow named the top UK city for first-time buyers – This Is Money

Wine definition to be watered down in post-Brexit move – BBC

House prices still rising – just – says ONS – MoneyWeek

The strange death of corporate Britain [Search result]FT

What Poland’s surprise election winner means for the world – Politico

The science of making people happier, not just wealthier or healthier – Vox

Products and services

Energy firms ordered by Ofgem to improve customer service – This Is Money

St James’s Place: exit fees are on the way out, what should customers do? [Search result]FT

Chorley BS offering 5.3% on ‘easy-access’ cash, but with big strings – This Is Money

Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

The lasting impact of ID fraud [Podcast]Which

Get £50 free trading credit when you open an account with Interactive Investor. Terms apply – Interactive Investor

You can now use Tesco Clubcard points to pay for Brewdog pints – This Is Money

£8 is the new £5.99: five rules for buying wine today – Guardian

How much does the flu jab cost? – Be Clever With Your Cash

Top energy-efficient homes for sale, in pictures – Guardian

Comment and opinion

A few laws of getting rich – Morgan Housel

High TIPS yields are a retirees friend [US but relevant]Morningstar

Crunch time for student buy-to-lets [Search result]FT

Money and happiness: lessons from lottery winners – Darius Foroux

The missing billionaires [Podcast] – Talking Billions via PlayerFM

How to invest during times of war – Of Dollars and Data

Budgeting for random acts of generosity – Humble Dollar

Why investors are buying gilts again – This Is Money

This is the worst bond bear market in history – A Wealth of Common Sense

In praise of slowness, in life and investing – Safal Niveshak

Naughty corner: Active antics

The FTSE 250 is looking very cheap right now – UK Dividend Stocks

Risk and returns, before and after the fact – The Diff

Momentum is everywhere – Alpha Architect

Kindle book bargains

The Panama Papers by Bastian and Frederik Obermaier – £0.99 on Kindle

The Simple Path to Wealth by JL Collins – £0.99 on Kindle

Mastering the Market Cycle by Howard Marks – £0.99 on Kindle

The Power of Moments by Chip and Dan Heath – £0.99 on Kindle

Environmental factors

How to make space-based solar power a reality [Search result]FT

Coca-Cola trial to make bottle tops out of CO2 emissions – BBC

Yet another reason not to use ESG scores – Klement on Investing

If you’re worried about the climate, move your money – The Atlantic

EU to crack down further on micro-plastics after glitter ban – BBC

Robot overlord roundup

Two friends spent $185 on an AI side hustle and sold it for $150,000 – CNBC

After ChatGPT disruption, Stack Overflow lays off 28% of staff – Ars Technica

Weight loss drug economics mini-special

Goldman Sachs: obesity drugs could be a $100bn market by 2030- Yahoo Finance

MedTech stocks are in tumult due to the obesity-reduction drugs – Herb Greenberg

Something is golden in the state of Denmark – The Atlantic

How weight loss drugs could radically reshape the food business – Axios

Ozempic is obviously good for business – Very Serious

Off our beat

The Lincolnshire village honoured in every Disney movie since 2006 – BBC

Burnishing a legacy – Humble Dollar

How to make your mind maybe one-third quieter – Raptitude

The secret life of the man who stole $3BN of Bitcoin – CNBC

A skeptical review of Permacrisis by Gordon Brown, Mohamed El-Erian, and Michael Spence – Guardian

UK’s nuclear fusion site ends experiments after 40 years – BBC

On coffee, the world’s favourite stimulant [Podcast]Tim Ferris

None of your photos are real – Wired

Rishi Sunak, decorated hero of the war on motorists, is no match for a real conflict – Guardian

Brunch is for assholes – We Are Gonna Get Those Bastards

And finally…

“The two greatest enemies of the equity fund investor are expenses and emotions.”
The Little Book Of Common Sense Investing

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The post Weekend reading: five interesting charts from the IFS Green Budget 2023 appeared first on Monevator.

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