How will “fuel shortages” affect the economy?
The link between fuel shortages and the economy
A lack of lorry drivers has caused a shortage of fuel at some stations
A lack of HGV drivers is impacting the supply chain and effective transportation of fuel across the UK. To transport hazardous substances, HGV drivers need a special qualification which is further compounding the problem, along with people panic buying fuel. The lack of drivers has also led to gaps in supermarket shelves.
The shortage of drivers has had a knock-on effect on the availability of fuel at some petrol stations. BP announced that several of its stations have closed and up to 100 of its stations were short of at least one grade of fuel. Esso have said a “small number” of its Tesco forecourts have been affected.
There is a shortage of around 100,000 HGV drivers in the UK, caused partly by Covid and partly by Brexit. Around 25,000 drivers from the EU left the UK in 2020 and haven’t returned, and there is a backlog of around 40,000 drivers waiting to take their test. There is also the issue that drivers are not being replaced once they retire, and with the average age of a HGV driver being 57, the issue will only get worse with time unless efforts are significantly ramped up to train more drivers. There has been a shortage of drivers in the sector for around a decade as people retire or change careers. Long hours, and a lack of facilities to bathe and rest in the UK has made it difficult to recruit new drivers.
What is the government doing to combat the problem?
The government has recently announced its intention to issue 5,000 temporary visas to truck drivers to ease labour shortages, but industry bodies are arguing that it does not go far enough to address the problem. For example, Ruby McGregor-Smith, president of the British Chamber of Commerce, compared the announcement to “throwing a thimble of water on a bonfire”. She argued that the number of visas issued was too few. The visas are only valid for 12-weeks, which Rod McKenzie, director of policy at the Road Haulage Association, said would “barely scratch the surface” of the problems faced by the logistics sector.
Transport Secretary Grant Shapps has announced long-term plans to train up new lorry drivers, and has written to people who hold an HGV licence encouraging them to return to the sector, but has stood firm that Britain must “stand on its own two feet” and not become reliant on EU drivers.
Shortage of goods = rising prices?
As mentioned previously, the shortage of drivers does not just affect the availability of fuel; shops are also experiencing a shortage of goods which has led to gaps in supermarket shelves. Many supermarkets have warned that food prices may increase. Morrisons has announced that it expects the lorry driver shortage plus higher freight charges and commodity prices to affect the cost of food.
How does a higher cost of living affect house prices?
A rising cost of living is not necessarily a bad thing, if it is matched by an equal rise in wages. This means that people will still have the same amount of disposable income to save, invest, or spend on goods or entertainment. The issue is if the cost of living goes up, for example with heating, fuel and food, and wages do not increase. This reduces an individual’s spending power as a larger proportion of their income is going on necessities.
If wages stagnate and people have less disposable income, buying a house becomes less feasible. People may be unable to get credit if their income does not meet criteria set by mortgage companies and it will be more difficult to save for a deposit whilst having higher outgoings. Secondly, homeowners may be forced to sell if they are unable to meet their mortgage repayments.
This means that there will be more homes on the market but fewer buyers, which affects the supply / demand balance. If demand is reduced because of a lack of able buyers and an increase in supply, house prices will decrease.
Fortunately, the shortage of fuel and goods is predicted to be a short-term problem and demand is expected to reduce within the next couple of days. This is mainly because many cars are now holding more fuel than usual, giving the chance for supply levels to stabilise. The government has set out plans to train more HGV drivers and while it will take some time to work through the backlog of HGV tests that were delayed due to Covid, EU drivers on temporary visas can plug the shortfall for now.
Investing in property is a long term venture which means that while prices may temporarily fluctuate due to the economy and unforeseen events such as the pandemic, they are generally on an upward trajectory. Hamptons has released its latest predictions for house price growth until 2024, anticipating a rise of 3.5% in 2022, 3% in 2023 and 2.5% in 2024. The growth will be driven by low mortgage rates and equity rich homeowners who are still looking to move. Northern regions, Scotland and Wales will lead the way in terms of growth, with London prices failing to keep pace.
The shortage of fuel may affect the price of goods and people’s disposable income, but it must be noted that companies are taking steps to minimise the effect this will have on consumers.
In the past inflation has had this effect on house prices. When the Bank of England increases the rate, even by as little as 0.25%, it has a huge effect on the cost of goods and credit. Interest rate rises affect disposable income and people therefore have less to spend on mortgage payments, especially when wages are not rising and living costs are. Therefore, interest rates, used to control inflation may have a dampening effect on house prices because fewer people are able to get credit or save for a deposit, so there is less buyer demand.
However, if fewer people are buying and more people are renting then rental yields should go up. In many places letting agents have reported more rental enquiries than landlord instructions. RICS UK Residential Market Survey reported that tenant demand accelerated in August, with a net balance of +66% reporting an increase in enquiries, and this is up from +58% in July. Combined with a decline in landlord instructions, it is predicted that rents will go up as there will be a supply / demand imbalance.
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