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House prices remain stable in Scotland and viewers continue to rise. There still seems to be doubts about interest rates, and mortgages for some are still difficult to achieve. Even David Cameron said last week “Britain needs a pay rise”.  He has finally listened to me!
Britain got one in December with inflation falling to 0.5%, but unfortunately it takes a long time before people feel the real difference in their pocket, where a pay rise is immediate and has real impact. However, January figures were announced today and inflation is heading towards 0% and likely to stay at zero or just under for most of 2015. With the cost of goods falling even more dramatically with oil prices pushing them down still further, its worth taking a look at what is happening to oil and why, to see where it will lead our inflation and therefore interest rates in the future.
Oil prices are now 50% below where they were last year, primarily because of over production, which is happening for two reasons. The producers fired up in 2012/13 thinking the World was on the mend, unfortunately Europe is still stagnating which is causing a slowdown in China, so the demand for oil is not there and a quick recovery in Europe is highly unlikely. The second reason for over production is America is now pushing ahead with shale production to try to become less dependent on the Middle East oil producers. Saudi Arabia the largest producer in that cartel is reluctant to give up its World dominance and is therefore trying to price many of the shale producers out of the market. The problem for Saudi is most of the North Dakota fields are still profitable at just below $40 a barrel so at the current price of $50 a barrel we may see a further fall, certainly, low oil prices are here to stay for some time, at least a year if not longer.
That in turn means very low inflation if not deflation for many Countries, which for us keeps pushing back the date interest rates may start to rise slowly.
It’s becoming very clear that interest rates in the UK are going to be very, very, low for at least 8 to 10 years. That is half a mortgage life for most people, surely home buyers are going to see that soon!
I suspect not, they are waiting for the more obvious, a wage rise, even if the benefits of a wage rise are a fraction of that of low inflation and low interest rates, I still think that will be the trigger to serious house movement. Until then it is a case of trying to educate the increased numbers of viewers.
So come on David Cameron, put your money where your mouth is, “Britain needs a pay rise”  
One note of caution on deflation, sometimes it gives an economy a shot in the arm and people start spending on falling prices. Other times people sit on their hands waiting on prices falling further, causing a continuous fall like Japan has only just started to show signs of recovery from 20 years of deflation/stagnation. Not something we would like to experience. The Euro Zone is most definitely on track for that unless they take charge of the situation now (deflation currently minus 0.6%). I believe we are capable of avoiding it, but deflation will probably be with us until after the General Election.