Buy french property now and counter UK losses

THE Governor of the Bank of England, Mervyn King, yesterday announced that UK inflation is set to worsen. He almost seemed shocked by the gravity of his words in admitting that the outlook for UK inflation has "deteriorated markedly."

Consumer inflation is at its highest in 13 months as a result of higher food and energy prices.

These external factors, of course, affect economies globally but Mr. King says, about the UK specifically, that "the central projection is for growth to slow sharply in the near term".

He said that house prices will fall further.

If UK interest rates stay as they are it could very well mean recession.

And with regard to the credit crunch and lending he says "It will take time to rebuild that sense of confidence in the banking system and during that period credit conditions will be more difficult than they would normally be," he said.

"I think the events of the last six to nine months are not ones that people will forget in a hurry."

Analysts' most optimistic 12 month exchange rate forecast is 1.3.

Figures released yesterday show better than expected growth in the French economy. Today, in Paris, Veronique Tison reported "The French economy recorded a first quarter growth estimated at 0.6%, better than expected, and the figure for the whole of 2007 was revised to 2.2% instead of 1.9%, announces the INSEE.

These "two very good news", in the words of Minister for the Economy Christine Lagarde, reinforce the government forecast of growth between 1.7% and 2.0% over the whole of 2008."

Inflation went from 2.8% to 3% in the first quarter.

In an article earlier this week on the respected capital.fr, there was good news about french interest rates.

It said, "Interest rates are generally stable, the average rate hovered around 4.67% in 1st quarter 2008 and 4.64% in April 2008, the same level as in December 2007.

In addition, the Observatory noted a reduction in the duration of debt, which amounted to 224 months for the 1st quarter of 2008 and 222 months in April 2008 a little over 18 years.

Other good news, buying real estate had a slightly smaller impact on household solvency. Its cost was 3.80 years of income in the 1st quarter of 2008 against 3.92 in Q4 2007."

The French housing market hasn't bottomed out. FNAIM and other industry experts say that it's not likely to either.

However, UK estate agents will have an increasingly difficult time in 2008 in a market where the Bank of England has assured us house prices will fall and goes on to say "we just don't know by how much".

This poses another problem for owners trying to sell in the UK.

In the last nine months, largely thanks to the credit crunch, it has taken longer to sell their properties.

The Bank of England have now given up all hope on the expected rebound in 2009.

However long it has taken to free up equity by liquidating assets in property and businesses, we now have a guarantee from Mr. King that it will take a lot longer over the coming 18 months at least.

There is, of course, the "do nothing" option.

A progressively weakening pound, rising price inflation, falling house prices etc., all mean that those considering a move abroad who choose not to transfer their assets into euros now will lose out.

Yesterday's anouncements on the UK economy were as crystal clear as we'll get. We know now that there is no point in waiting to see what will happen in the coming months.

Even if people decide that France isn't where they want to invest, it's probably not a great idea to leave everything they own in the UK.

Traditionally, France has never been a country that people invested in with the express intention of making vast returns.

This is how France differs in one respect to emerging markets.

Property speculators have all but disappeared. Buying property in France is a lifestyle decision for the vast majority of people. The returns are a welcome side effect.