On 12th of January the Royal Bank of Scotland (RBS) gave a stark warning to investing customers: “Sell everything ahead of a stock market crash. This looks very much like 2008.”
Whilst experts have said RBS might be overreacting, a month of crashing oil prices, turbulent stock markets and poor economic growth results has made the prospect rather more possible than before.
Snapchat: Will there be a London crash?
A crash and subsequent recession would hit everyone hard, with businesses going bust, fewer jobs and less cash to go round. What makes this worse? No one can predict if or when a recession will hit. If it does what will it mean for young Londoners who have already been battered by the wake the 2008 financial crisis?
David Cameron recently dubbed young Londoners as “Generation Rent”. Can those under 35 handle another economic shock? Economist and financial expert Alicia Jardine Laurie says: “Politicians used to talk of a lost generation. It’s been nearly ten years since the global recession hit, yet young people can’t get on the housing ladder. They have degrees yet they work in call centres and the economic situation doesn’t show any sign of improving.”
Take Graeme, a recent graduate who can’t fine secure employment: “I get tired of moving from job to job. The kind of work I used to do paid £13 an hour. Now it’s the minimum wage [£6.17]. I have a degree; I don’t want to be a bus driver the rest of my life.”
Graeme isn’t alone. It’s been a tough eight years for young Londoners. Alicia Jardine Laurie says: “In a generation where morale is at an all time low a stock market crash could be catastrophic, with many graduates unable to find anything more than menial work and with no hope of ever getting on the property ladder.”
She continues: “A market crash and subsequent recession would see young Londoners in every sector lose their jobs, as companies go bust and make cut backs. Wages will decrease as competition increases and because of astronomic rents young Londoners may lose their homes.”
Despite seeming bad, the government argues that economically things are going to plan. As a country there is low inflation, economic growth and falling unemployment. Young Londoners have cash in their back pockets because of low inflation.
James Sproule, Chief Economist at the Institute of Directors, said, “Whatever turmoil may be stalking the global economy, we should be under no illusions: cheap oil and low inflation are good news for Britain.”
Whilst no one can predict whether or not there will be a financial crash, one will come if speculators and investors lose confidence in the UK’s economic strategy. The London based FTSE100 has entered a bear market, where speculators look to make a killing out of an uncertain market. There are three key factors behind the bear market, firstly how interlinked the UK financial sector is with the slow down of the Chinese economy; secondly the financial position of British banks; and thirdly the UK housing market, which continues to bubble.
There has now been six weeks of turmoil in the financial markets, the sell-off in shares and a collapse in commodity prices. There is no doubt the UK financial sector is better suited now to cope with a financial crisis than in 2008. But confidence is not being shown by speculators, as banking shares have been sold in recent weeks.
The real question is: how closely are these banks linked to the slowing economies such as China and Japan? Over the last 20 years, China has seen record economic growth, becoming the world’s second largest economy. But now years of boom built on cheap loans may be turning sour. Official figures suggest Chinese economic growth has slowed to 7%, having been closer to 15% most years since 1980. However economists Danny Gabay thinks the real rate of growth could be below 3%. If UK banks are exposed to the Chinese market, it could lead directly to UK recession.
The biggest bubble which could lead to UK recession is one that young Londoners can tell you all about – the house price bubble. The fact that globally we see negative interest rates and quantitative easing (QE) worries investors. QE and ultra-low interest rates pump up asset price bubbles – especially in property. Rightmove says the average London house price in 2015 was £514,000, more than 10 times the average London family income.
Are we going to enter recession? Who knows? But it’s worth keeping an eye on the health of the company you work for, as your circumstances could change overnight.
Sub edit by David Gregg @DTGregg1