Looking ahead
Looking forward, the research suggests a UK recession will be hard to avoid. Relative to mid-2007, the decline in the housing wealth to income ratio will soon reach 15%, which would eventually lower the consumption/income ratio by about 2.5 percentage points. But real household incomes are themselves falling, under pressure from oil and food prices. A further 1% or more fall in consumption is likely from the direct and interaction effects of the contraction of credit availability. On top of all that comes the effect of the fall in the stock market. The estimated adjustment speed in the model is 0.35 per quarter, so it takes several quarters for the full effects to show up.
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