The UK's waning climate resilience
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
The UK's annual rate of inflation rose to 4% in December, from 3.9% the previous month, according to official figures published this morning. Economists had been expecting a slight decline to 3.8%.
There's not a lot to separate those numbers, but they will cut the odds of a first rate cut this spring. Core CPI, which excludes volatile items like energy and food, continued to rise at an annual rate of 5.1%. The services CPI ticked up to 6.4%, from 6.3%.
Whether this reading will feed through to swaps rates to such a degree that it causes lenders to pause cutting mortgage rates is the key question for the housing market in the short term. I think it's unlikely, particularly given yesterday's data showing wages grew at the slowest pace in almost a year during the three months to November.
Intergenerational dependency
China is slowly losing economic momentum as it grapples with deflation and a property slump, according to a raft of figures published overnight. Bloomberg has a good summary here: home prices fell the most since 2015 in December. Housing new starts — a key gauge of confidence among developers — plunged 20.9%.
Policymakers have suggested they'll ramp up support this year and they have the firepower to alleviate much of the pressure, but data showing an accelerating population decline poses much more complex problems. The population dropped for the second year in a row. Births fell to the lowest on record.
China's working-age population peaked in 2011 at more than 900 million and will decline to 700 million by mid-century. At that point, these workers will need to provide for nearly 500 million Chinese that are aged 60 and over, compared with just 200 million today. The economic challenges posed by this rebalancing vary. An aging population of this size and scope will lead to a massive increase in healthcare and pension costs. Historically, aging populations are associated with reduced productivity and increased labour costs, and affordable labour has been a crucial factor in China's growth.
Climate resilience
Back in September I wrote about the UK's struggles with mega projects. News of the scrapping of the northern leg of HS2 was still fresh, leading many to wonder why Britain seems to face unique challenges in getting big projects over the line.
The same problems keep cropping up - the UK's planning process is heavy on bureaucracy and local authorities are massively underfunded. In the case of HS2, costs pan out at about £200 million per km. Other European nations manage to do it for £32 million per km, according to a 2016 benchmarking study by PWC.
The UK's ambition to create “a nation more resilient to future flood and coastal erosion risk” risks succumbing to the same vulnerabilities, according to a new report by the Public Accounts Committee (PAC). There are 5.7 million properties in England at risk of flooding, and progress to better protect assets has been painfully slow.
Slow progress
The government’s six-year, £5.2 billion capital programme running to 2027, originally intended to provide better protection for 336,000 properties in England, started slowly. The Environment Agency underspent by £310 million in the first two years, yet officials still expect to spend all £5.2 billion on building flooding defences.
With the slow start and additional challenges such as inflation, the Agency will fund only 1,500 of the 2,000 flood defence projects originally planned in this investment period. It expects these projects will protect only 200,000 properties by 2027, a reduction of 40% on the government’s original commitment, but the final number could be even lower.
Why is this proving so hard? According to the committee: "the Agency is reliant on local authorities to help improve the country’s resilience to flooding, particularly for surface water flooding and ensuring new housing developments do not add to the problem. Yet local authorities suffer from a lack of clarity from Defra on when they will have to take on additional responsibility for approving certain construction activities, as well as a lack of funding."
Flash floods
Flooding in London during July 2021 provided a glimpse of the problem. New details of the damage emerged in a new report from the Mayor's office last night.
Some parts of the city received more than twice the average July rainfall in two hours. More than 2,000 properties were flooded with stormwater and sewage. More than 30 tube stations were affected; hospital wards were evacuated. At a roundtable hosted by the Better Buildings Partnership, "a major commercial real estate provider in London" said 20% of their occupied commercial properties had to be vacated due to flooding from summer rainfall.
The interim report is part of The London Climate Resilience Review, commissioned by mayor of London Sadiq Khan and chaired by Emma Howard Boyd, the former chair of the Environment Agency. Current policies mean that the world is on track for a 2.5-2.9°C temperature rise above pre-industrial levels this century, which Boyd says would have "disastrous consequences and London is underprepared."
"London can’t wait for unassailable policy positions, we need pace not perfection," Boyd concludes.
In other news...
Trump victory poses existential threat to Europe, warns Blackrock chief (Telegraph), ECB resists spring interest rate cut as price expectations ease (FT), and finally, high spending tourists turn to European neighbours after UK axes tax-free shopping (FT).