By Lewis Burns
No matter your political affiliations or beliefs, whether you vote Labour or Tory or SNP or Greens, everyone seems to be in complete agreement: the economy’s a complete mess.
With the current UK economy already struggling with the repercussions of a global pandemic and a cost of living crisis caused by rising energy prices, Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng’s proposed mini-budget sent the UK economy into even further turmoil. The mini-budget, which unveiled plans for a series of tax-cuts and heavy government borrowing, shocked the UK market, and resulted in the value of the pound against the dollar dropping to the lowest in recorded history, along with a slew of sell-offs in UK assets and criticism from the International Monetary Fund.
As students, the current and future state of the economy is immensely important to us. Since we’re getting closer and closer to leaving university and entering the workforce, the economy dictates substantial areas in our future ways of living, such as housing and employment.
James Black is a Knowledge Exchange Fellow at the Fraser of Allander Institute, a leading economic research institute based at the University of Strathclyde. I sat down with him and discussed the recent economic fallout caused by the mini-budget, and asked how the future looks for young people who’ll soon leave university.
“This is obviously a troubling time for the economy. Typically in times of this, what the markets like to see is responsible, sustainable investment in the economy, and typically like to avoid widespread spending that doesn’t have a clear view as to how it’s going to be funded. Perhaps the most difficult part of [the budget], was that it wasn’t fully assessed by responsible bodies such as the Office for Budget Responsibility… There were a lot of announcements, pretty major announcements, some of which are going to cost a lot of money. Markets responded with the view that this was a large amount of spending at a time where investment in the economy was risky.”
With the pound’s value dropping to such an extreme low, this has significant direct and indirect implications for everyone living in the UK, as James explains:
“The first and most important thing is that even though it might not appear to directly impact us, it does indirectly impact us in many ways… The Bank of England is likely to respond with higher interest rates, and that’s gonna impact those of us with houses and mortgages, it’s gonna impact us pretty directly, and even those of us who simply just work and don’t have houses are going to be impacted indirectly because one of the impacts of higher interest rates is that it’s gonna cost more money for businesses to borrow, and that there’s gonna be a reduction in investment of businesses.”
Those of us needing student accommodation have already experienced the brunt of an increasingly expensive and exclusionary housing market, as students across Scotland and the UK have found themselves struggling amidst severe housing shortages.
“We’ve seen a number of issues with universities across Scotland, reporting that they’re unable to find accommodation for students. We’ve seen extreme problems with rent stock happening in parts of Glasgow. We’ve heard of cases of students who are bidding on rent offers. and this is fairly unprecedented for this time.”
Earlier this month, First Minister Nicola Sturgeon announced a ‘rent freeze’ in Scotland, which prevents any further price increases on rented properties until March 2023. This measure has helped tenants through the cost of living crisis, however, it comes with some repercussions, as it could lead to even higher costs for rent once the freeze is over.
“The pros being that obviously people who are renting know that they are not gonna have to pay anything more for rent over coming months. The negative here is that in a market where supply is already such a big issue… it could reduce the level of investment in flats. So we might see fewer flats in the market next year, which would, of course, just exacerbate issues of prices for those currently renting.”
The future isn’t looking too favourable for students who are hoping to buy their own home either. A lack of supply in housing, along with high requirements for deposits, have made home-ownership an even more distant reality for the next generation.
“So would I say it’s going to be a challenge for students going into the market to be buying a house anytime soon? I would say yes. I’d say yes because of a fundamental problem. A lack of supply has not been addressed and doesn’t appear to be addressed on a large enough scale, and ultimately if there aren’t enough houses, then price is going to continue to increase… There’s also the difference between the sale price of the house and the home report valuation, and that gap cannot be funded by a mortgage. So students are often faced with much higher requirements for deposits than they would otherwise.
“There is not likely to be a significant improvement in the affordability of houses for students going into the market anytime soon.”
When looking at employment, things don’t seem to be much better. With the severe rises in the prices of energy and interest rates, businesses are cutting costs, and that includes costs of labour.
“Some of the things that we should expect to be looking at over the coming year are potential increases to unemployment… it’s likely that the bank’s gonna have to raise interest rates further. So, that’s going to increase the chances of job losses, or potentially temper wage increases.”
“For students going into the labour market, it’s likely to be a more challenging time to get a job than it has been for the last few years. The labour market currently is still fairly strong, but there is an expectation that it’s gonna weaken somewhat over the coming months. There’s an expectation that the Scottish economy is likely to drop into a recession towards the end of this year and through into 2023.”
Overall, times are tough right now for Scottish students, and for those of us leaving uni in the next few years, the future isn’t looking too bright either. A recession, further increases in the price of housing, and an even more demanding job-market, are all to be expected.
“This is certainly a challenging time for young people… There’s no doubt here that students are one of the most impacted groups in society, particularly following the pandemic where students have obviously had their own education so impacted… There’s no doubt that there are many things impacting our students right now that haven’t been over for a number of years.”