15 terrible effects of the financial crisis

Neil Faulkner looks at the effects of the credit crunch and recession on house prices, landlords, unemployment, interest rates, household income and much more.

My favourite economist, J.K. Galbraith, said:

'Faced with a choice between changing one's mind and proving that there was no need to do so, almost everyone gets busy on the proof!'

People like to search for patterns in numbers, particularly when there's a lot at stake personally. Therefore, to help you out, here are some numbers for you to play with but, please, try not to get caught up in confirmation bias:

'One tends to notice and to look for what confirms one's beliefs, and to ignore, not look for, or undervalue the relevance of what contradicts one's beliefs.'

1) House prices

Since the high point in August 2007 of £200,000, prices reached a low in April 2009 of £154,000, a 23% drop. Since then, and until July 2009, prices have had two months of rises out of three, regaining 3% overall to £160,000.

These are average prices and different regions and types of property have fared differently. (These figures are based on Halifax's UK-wide property-price index.)

2) Landlord-owned property

The total value of properties owned by private landlords has dropped by more than £120bn - £37bn of that is in London alone.

3) Bank of England Base Rate

The Base Rate - the rate at which the Bank of England lends to banks - has fallen from 5.75% in November 2007 to 0.5% in March 2009, and remains there today.

4) Borrowing interest rates

Average credit-card interest rates for purchases and balance transfers have risen from 15% in April 2006 to 18% today. Average unsecured loan rates have gone up from 8.5% in May 2007 to 12.5% in May 2009. The best unsecured loan rates, which are available to the customers with the best credit ratings, have gone up from 5.5% in October 2006 to 8% today.

5) Savings interest rates

The best easy-access rate (excluding accounts with the worst catches and from banks that have gone bust!) was 6.4% in February 2008. Now it's 3.3%.

6) Savings ratio

We've saved pitifully little for years, mostly between 2% and 4% of our disposable income from the beginning of 2004 to the present. We used to save 10% or more!

7) The pound

The pound fell 31% against the dollar from its high of $2.07 in November 2007 to $1.42 in March 2009. It has since recovered somewhat now to $1.64.

It fell from a high of €1.51 in January 2007 to €1.09 in March 2009, and is now back up again to €1.16. (All these figures are based on average spot rates over a month.)

8) Household income

35% have lost income since the recession began. The average loss is 20% or £6,500 per family. 7% of these people have taken a second job and 4% have sold their car or house to raise money.

9) Unemployment

Unemployment has risen to 2.4m from the low point in January 2008 of 1.6m.

10) Vacancies

Workplace vacancies have fallen to 430,000 from the high point of 700,000 in February 2008.

11) Debt

We now owe £1.5 trillion. In July 2004 we owed £1 trillion, but our debt has been rising rapidly for many more years than that. My rough estimate is that for most of this decade our debt has risen by £1m every four minutes.

When we add on our public debt, we as a nation now owe £3 trillion. To put this into perspective, our debt is a little greater than the worth of all our savings and other assets, such as property, combined.

12) Gross domestic product

The measure of the value of all the goods we produce (GDP) rose 3% for the year up to March 2006.

Over the past year to the end of June 2009 it's down 5.6%. The Governor of the Bank of England says it's no longer worth saying 'This recession is the worst since...', because it's about as bad as it's ever been.

13) The stock market

The FTSE 100 - the most-commonly quoted London Stock Exchange benchmark that indicates the performance of share prices - reached a high of 6,950 in December 1999, fell to 3,500 in January 2003, rose again to 6,750 in October 2007, fell again to a low of 3,500 in March and has now recovered to 4,750.

It's still 32% off its high ten years ago, showing that investing, on average, can require a great deal of patience before it pays off.

(These figures don't include dividends - income that investors will have received from their shares - which will have helped mitigate much of the losses over the period.)

14) Enforced thrift

3.8m will holiday in the UK because of money worries and a similar number won't go on holiday for the same reason. 34% of those taking a holiday will spend less than last year.

15) Business

12,000 independent stores and 7,000 chain outlets have closed this year.

How not to use these figures

That's all in the past, but what does it mean for our future? Remember that most economists stay well away from economic forecasting for a reason. Wiseman Galbraith admitted:

'The purpose of economic forecasting is to make astrology look respectable'.

Try not to read too much into patterns you see here. Black swans, missing data, mass sentiment and other things have a way of swinging round and hitting predictions in the face.

Need to move but can't sell? Don't panic! | Make this pension mistake and lose £38,000!