Reader Letter: A couple of thoughts about prospects for the UK economy…


First, I expect to see a big fall in share prices on the London stock market. This is due to something famously called the “hemline indicator” which was developed by an economic analyst who saw the length of women's skirts as a predictor of the stock market. If skirt lengths shortened, the stock market would go higher. If they lengthened, the stock market would fall.

Over this summer I have noticed that women in Wisbech town centre are wearing dresses with longer hemlines with most being below the knee. Whilst this could be down to the inclement weather we've been having over the summer, I still think that hemlines are getting longer and this indicates that share prices will fall sometime soon.

So it is time to move one's money from the stock market into cash in the bank. Conformation of the coming stock market crash will be evident at this autumn's fashion weeks in both London and Paris, where will we will see women on the catwalks wearing dresses with longer hemlines which go below the knee or even down to the ankle.

Second, house prices continue to fall. In July the House Price Index (HPI) on RightMove fell by £7000, the biggest fall since pre-pandemic highs in August 2019. The HPI is a measure of average  prices listed on RightMove. Unlike the Nationwide HPI, the RightMove HPI doesn't reflect the average price actually paid by buyers. Nationwide's HPI is therefore a lot lower than RightMove's

However, RightMove's HPI does give an indication of the direction of travel for house prices which are in free-fall as sellers finally catch on that they have to reduce their selling price in order to get a sale. The number of properties on the market is rapidly increasing due to people downsizing to be able to afford their mortgage payments given that mortgage rates have increased by 3 percent.

At the same time, buy-to-let landlords continue to exit the market in large numbers. With higher paid workers wages increasing at 7.9 percent, the Bank of England's monetary committee will raise interest rates by a quarter or even a half of one percent at it's September meeting. Further rate rises to 6 percent can be expected by the end of the year as the Bank of England engineers a recession.

The Bank of England expects inflation to fall in 2024 with the deflation expected in 2025. As the late Robert C Beckman, who predicted that house prices would one day crash, famously remarked: “Any government in power when house prices fall in a big way, will stand little chance at the next general election.” Falling house prices will be the final nail in the coffin of the Tory government.

Some people may say that the Tory government will do something to prop up the housing market, just like George Osborne did in the run-up to the 2015 general election. However, whilst governments are powerful, market forces are even more powerful. So we should expect a house price crash over the next twelve months with all its revolutionary implications.

John Smithee


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