Posts with tag: economy

Brexit Uncertainty is Biting UK GDP and Housing Growth, Reports PwC

Published On: July 18, 2017 at 8:14 am

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In its latest UK Economic Outlook, PwC forecasts that Brexit uncertainty is starting to bite UK GDP and housing growth.

UK GDP growth will slow from 1.8% in 2016 to around 1.5% in 2017 and 1.4% in 2018, according to the firm’s latest projections.

This is due to slower consumer spending growth and the drag on business investment, due to ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations.

While UK economic growth held up better than expected in the six months following the Brexit vote, growth slowed in the first half of this year, as inflation rose sharply, which squeezed household spending power.

PwC expects consumer spending growth to continue to moderate during 2017-18, as inflation eats into real spending power and wage growth remains subdued, despite record employment rates. So far, consumers have offset this in part through higher borrowing, but there are limits to how much further this can go, as household savings ratios have already dropped to very low levels. On the other hand, the weak pound should also have some offsetting benefits for net exports, as will a stronger global economy.

Brexit Uncertainty is Biting UK GDP and Housing Growth, Reports PwC

Brexit Uncertainty is Biting UK GDP and Housing Growth, Reports PwC

The Chief Economist at PwC, John Hawksworth, explains: “Brexit-related uncertainty may hold back business investment, but this should be partly offset by planned rises in public investment. Fiscal policy could also be further relaxed in the 2017 Autumn Budget to offset the ongoing real squeeze on household spending power.

“There are still downside risks relating to Brexit, but there are also upside possibilities if negotiations go smoothly and the recent eurozone economic recovery continues. We expect the UK to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans.”

Housing growth loses momentum 

In the property market, PwC projects a slowdown in growth, with house price inflation at 3.7% in 2017 – down from 7% in 2016. The average house price could be worth around £220,000 this year – £8,000 higher than last year – and could rise to more than £300,000 by 2025, the firm warns.

Property sales, which tend to be more volatile than prices, are where Brexit uncertainty has manifested itself most strongly. Year-on-year, the number of transactions has been down for 12 consecutive months.

The London property market has been most severely affected by economic and political uncertainty, in addition to the recent change to Stamp Duty. Price growth in the capital for the first four months of 2017 was around 4%, compared with about 13% for the same period in 2016. PwC expects London’s housing market to continue to slow, with just 2.8% and 3.8% growth on average for 2017 and 2018 respectively.

Elsewhere in the UK, the East of England and southern regions will continue to grow above the UK average, the firm believes, while Northern Ireland and the North East will continue to lag behind. While the average house price across the UK has risen by 17% since mid-2007, over a quarter of all local authorities are still below their 2007 peaks.

Richard Snook, a Senior Economist at PwC, comments: “There is a huge disparity in how sub-regional housing markets have performed since the recession. The local authorities that have experienced the greatest falls in house prices since 2007 are all based in Northern Ireland, while London dominates biggest risers, with all boroughs experiencing price growth of over 50%.”

PwC’s analysis has also found that London’s property market has seen a structural shift recently, as house price growth has moved outward from the capital. Growing unaffordability within London, coupled with policy reform, has seen house prices in prime central boroughs slow, while values in outer boroughs and the commuter belt have risen.

Over the last two years, house prices in the outer boroughs have increased nine percentage points faster than in inner boroughs, while growth in the fastest growing cities within the commuter belt (including Basildon, Luton and Slough) exceeded those in London by four percentage points.

Snook concludes: “The affordability crisis within London has seen first time buyers in particular struggling to buy in the capital. In 2016, house prices in London were 13 times median earnings, while the 15 commuter belt towns offer a lower – albeit still high – ratio of nine times earnings.

“Essex appears to be a key commuter hotspot, with lower historical house prices than commuter towns west of London.”

BoE Freezes Base Rate at Record Low 0.25% for Another Month

Published On: February 3, 2017 at 10:11 am

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The Bank of England (BoE) has frozen its base rate at a record low 0.25% for yet another month.

BoE Freezes Base Rate at Record Low 0.25% for Another Month

BoE Freezes Base Rate at Record Low 0.25% for Another Month

The Monetary Policy Committee voted to keep the record low 0.25% rate on hold, with the economy performing much better than most experts predicted in the wake of last year’s Brexit vote.

The base rate was originally cut to a record low 0.25% in August last year

Financial markets forecast a 50% chance of a rate increase by December this year, although many economists now believe it could be much later.

That said, a rise isn’t set in stone, with the Governor of the BoE, Mark Carney, suggesting last month that the rate could even be cut further.

The economy has grown by 0.6% in each of the past three quarters, contradicting predictions by experts, including those at the Bank, of a sharp decline after the vote to leave the EU.

The BoE, which had warned that a Brexit vote could tip the UK into recession, has increased its growth forecasts since the EU referendum, with its latest quarterly inflation report expected to show a further nudge upwards for 2017.

So how will the record low 0.25% rate affect property owners and buyers?

The CEO of eMoov.co.uk, Russell Quirk, explains: “Today’s decision is great news and will no doubt boost both UK buyers and sellers, as well as the wider economy. It also acts as validation that the overall market stability seen throughout 2016 should carry on well into 2017, with the UK property market remaining in good health.

“With interest rates remaining as they are, the wider availability of affordable mortgage rates should further encourage buyers that now is as good a time as any to get that first foot on the ladder.”

He continues: “Some may even argue that a slight cooling in property values across the nation isn’t such a bad thing, and will further aid struggling buyers and help to partially address the growing housing crisis in the UK, although those already on the ladder may not share such a view.

“But a word of warning: those looking to buy should still do so wisely and not be encouraged to buy beyond their means due to today’s further rate freeze. It is inevitable that, at some point, interest rates will increase, and the normal rate being enjoyed currently could increase to 3-4%. Should this happen, those that are ill-equipped to deal with the escalating financial costs will find themselves in a very tough predicament.”

What do you think of the rate freeze?

Government Announces Route for Phase 2 of HS2

Published On: November 16, 2016 at 10:35 am

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The Government has announced its preferred route for Phase 2 of HS2. The route will link Crewe to Manchester, and the West Midlands to Leeds.

When both phases of HS2 are complete in 2033, the total number of mainline commuter and intercity trains per hour into and out of Birmingham, Manchester and Leeds will almost double to 48. The total number of intercity seats will treble, to almost 15,000 per hour.

The Transport Secretary, Chris Grayling, has confirmed the majority of the preferred HS2 route from Crewe to Manchester and the West Midlands to Leeds, in a major boost for the UK’s future economic prosperity.

He believes this is major step towards: significantly increasing capacity on the country’s congested railways for both passengers and freight; improving connections between the biggest cities and regions; generating jobs, skills and economic growth; and helping to build an economy that works for all.

The new HS2 trains will carry over 300,000 people per day and will treble the amount of seats available out of Euston at peak hours, freeing up space on the existing network for additional commuter and freight services.

The scheme will create around 25,000 jobs during construction and 2,000 apprenticeships. It will also support growth in the wider economy, worth an additional 100,000 jobs.

The direct benefits of HS2 will reach far beyond the towns and regions directly served by the new railway lines, insists Grayling. As the full network is completed, new HS2 trains will continue up the East and West Coast Main Lines, serving locations including:

  • Stafford
  • Liverpool
  • Preston
  • Warrington
  • Wigan
  • Carlisle
  • Glasgow
  • York
  • Darlington
  • Durham
  • Newcastle
  • Edinburgh
Government Announces Route for Phase 2 of HS2

Government Announces Route for Phase 2 of HS2

Grayling comments: “Our railways owe much to the Victorian engineers who pioneered them, but we cannot rest on their legacy when we face overcrowding and capacity problems.

“HS2 is an ambitious and exciting project, and the Government is seizing the opportunity it offers to build a transport network fit for the 21st century; one that works for all and makes clear to the world that Britain remains open for business.”

He continues: “The full HS2 route will be a game-changer for the country that will slash journey times and, perhaps most importantly, give rail passengers on the existing network thousands of extra seats every day. They represent the greatest upgrade to our railway in living memory.

“But while it will bring significant benefits, I recognise the difficulties faced by communities along the route. They will be treated with fairness, compassion and respect and, as with Phase 1, we intend to introduce further compensation which goes over and above what is required by law.”

The Communities Secretary, Sajid Javid, responds to the announcement: “The new HS2 routes laid out today will make sure our plans to create an economy that works for everyone remain right on track.

“We are determined to get both the Midlands Engine and Northern Powerhouse firing on all cylinders, and HS2 will help create new growth, jobs and homes right across the line.”

Grayling’s command paper, High Speed Two: from Crewe to Manchester, the West Midlands to Leeds and beyond, sets out the announcement in more detail.

On the western leg, HS2 will:

  • Continue north from Crewe to Manchester Airport
  • Continue from Manchester Airport to Manchester city centre, where a new HS2 station will be built next to Manchester Piccadilly

There will also be connections to Liverpool and to the existing West Coast Main Line, allowing HS2 services to continue north, serving stations to Glasgow and Edinburgh.

On the eastern leg, HS2 will:

  • Continue from the West Midlands to Toton in the East Midlands, where a new HS2 station will be built to serve Nottingham, Derby and the wider region
  • Continue north from the East Midlands to South Yorkshire
  • In line with Sir David Higgins’ recommendation, HS2 should serve Sheffield with a connection to the existing station, with the main route to be moved further east
  • From South Yorkshire, HS2 will continue to Leeds, where a new HS2 station will be built in Leeds city centre, adjacent to the existing station
  • HS2 will also have a connection onto the East Coast Main Line, allowing HS2 to serve York, Newcastle and other places in the North East

Following yesterday’s announcement, the Department for Transport has issued safeguarding directions for the preferred Phase 2b route, which protects the route from conflicting development, and also means that those people who are most affected by the plans to build Phase 2b can now apply to the Government to buy their homes.

The Department is also consulting on discretionary property schemes. These schemes are the same as those currently in operation for people living along the Phase 1 route. Two of these schemes will be in operation from today on an interim basis – Express Purchase and Need to Sell. If confirmed by the Government, all schemes will be in place until one year after the railway is fully operational.

Mark Hayward, the Managing Director of the National Association of Estate Agents (NAEA), explains his concerns over the announcement: “We welcome the news that the Government will pay compensation to homeowners impacted by the construction of Phase 2 of HS2. However, we remain concerned about the prospect of demolishing a brand new housing estate in Mexborough, South Yorkshire. Considerable amounts of money and time have gone into the construction of that estate, and it suggests that the Government’s approach to infrastructure construction is disjointed.

“People who bought those properties did so under the impression that they would be able to live there for years, bringing up families and creating homes. We call on the Government to fundamentally rethink its plans to ensure that the properties in Mexborough are saved and, by doing so, preserving homes for years to come”

The Government originally set out plans for Phase 2 of HS2 in 2013. Since then, it was decided to develop Phase 2 in two stages:

  • Phase 2a – From the West Midlands to Crewe
  • Phase 2b – From Crewe to Manchester and from the West Midlands to Leeds, South Yorkshire and the East Midlands

Phase 2a will open in 2027, while Phase 2b is scheduled for 2033.

We will continue to keep you updated on the major infrastructure projects that will affect communities and housing throughout the country, along with how they will impact on the economy.

Bank of England Leaves Base Rate at Record Low 0.25%

Published On: September 16, 2016 at 9:17 am

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Yesterday, the Bank of England’s Monetary Policy Committee (MPC) decided to leave the base rate at the record low level of 0.25%, in line with analysts’ forecasts.

Bank of England Leaves Base Rate at Record Low 0.25%

Bank of England Leaves Base Rate at Record Low 0.25%

However, the MPC did announce that the rate could be cut again further in the year.

Last month, the Bank cut the base rate for the first time since 2009 and approved another £170 billion of monetary stimulus to stop the economy falling back into recession, following the UK’s vote to leave the EU.

However, the Bank of England did hint that a rate cut could come later this year, in order to support a weakening economy.

In the minutes of its latest MPC meeting, the Bank said: “A majority of members expected to support a further cut in bank rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.”

The MPC also acknowledged that in recent weeks, economic data has been stronger than expected since August’s rate cut.

The Bank’s announcement arrives after recent figures suggest that the economy has so far held up well in the wake of the EU referendum.

Additionally, the founder and CEO of eMoov, Russell Quirk, reports that the property market has continued to strengthen following the Brexit vote.

He comments on the Bank’s decision to leave the base rate at 0.25%: “Today’s decision to leave interest rates frozen at 0.25% will no doubt continue to strengthen an already resilient post-Brexit UK property market. With property prices across the UK continuing their upward trend since the decision to leave the EU, it will come as welcome news for those looking to get a foot on the ladder in an already inflated market, due to the availability of tantalising mortgage products currently on the market.

“It should act as further reassurance to UK buyers and sellers that the property market is in good health and will, no doubt, help to boost this positive sentiment. It will be interesting to see if an increase does come in November, although by that time, any shackles of uncertainty should be well and truly shaken off.”

What do you think of the Bank’s decision?

Uncertainty Causes Slowdown in Mortgage Approvals in April

Published On: May 13, 2016 at 9:13 am

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A slowdown in mortgage approvals in April was caused by uncertainty in the economy, according to the latest Mortgage Monitor from the UK’s largest chartered surveyor, e.surv.

Uncertainty Causes Slowdown in Mortgage Approvals in April

Uncertainty Causes Slowdown in Mortgage Approvals in April

Seasonally adjusted house purchase approvals in April totalled 57,512 – down by 19.4% from the 71,357 loans granted the previous month. This significant decline follows a previous three-month average of 72,693 house purchase approvals since the start of the year.

e.surv believes that economic uncertainty is playing a role in this decrease, as are new tax changes for buy-to-let landlords.

Annually, house purchase lending has fallen by 14.9% from the 67,594 loans recorded in April 2015. Preceding this decline, annual rises of 20.2%, 17.9% and 14.7% were seen, as Stamp Duty changes triggered an uplift in overall lending levels. The drop also follows record high lending during the previous quarter, fuelled by buy-to-let borrowing.

The Director of e.surv, Richard Sexton, comments on the figures: “The mortgage market is entering a more turbulent phase. As lenders steer for safety, three different forces are at work. First and foremost are the effects of the looming EU referendum on confidence and certainty for the UK. Whichever way the result, financial markets could see rapid shifts in the days and weeks beforehand, and especially immediately afterwards.

“Secondly, the lending market is in one sense beginning to return to its normal rhythm after suffering a hangover from the party of buy-to-let activity seen earlier this year. As this excitement begins to wear off, a more normalised lending climate is beginning to reassert itself. Home lending is solid beneath this predicted surface slowdown, but now the headache is by no means over, as new economic risks cause understandable caution from lenders.”

He adds: “The third major break on mortgage lending is a deeper foreboding about the solidity of the UK economy – quite subtle, but potentially more major.”

Sexton advises lenders: “It’s crucial for lenders to manage risks in the coming months. There now looks to be completely different interest rate speculation on the horizon and all eyes will be on the Bank of England to see the next steps taken. With some calls to cut interest rates rather than raise them, lenders will have to remain even more alert to economic conditions. And slowing growth is a further sign which is adding to doubts over economic security in general.”

However, he concludes: “Despite all these ongoing risks, the underlying core of the lending market appears strong enough to weather such tests. For some first time buyers, prospects are improving and despite rising house price costs, lenders remain keen to help credit-worthy borrowers get on the property ladder.”

Recently, mortgage lenders were warned to tighten their lending criteria on buy-to-let products, due to new rules in the sector.

Could the Buy-to-Let Sector Harm the UK Economy?

Published On: March 12, 2016 at 8:21 am

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The buy-to-let sector has boomed in recent years, fuelled further by landlords rushing into the market since the start of the year. But could this surge harm the UK economy?

The Deputy Governor for Financial Stability at the Bank of England (BoE), Sir Jon Cunliffe, recently told a House of Lords committee that a huge rush of buy-to-let landlords may sell en masse if tax rates rise or higher interest rates reduce their profits.

He believes that this could cause significant house price declines and subsequent threats to the UK economy.

Could the Buy-to-Let Sector Harm the UK Economy?

Could the Buy-to-Let Sector Harm the UK Economy?

Lending data from the BoE shows that buy-to-let mortgages have risen from 11.3% of all new loans in the third quarter (Q3) of 2007 to 15.6% in Q3 2015.

Cunliffe says that if any changes are made in the economy to tax or interest rates, landlords may suffer dismal returns or even losses. This could then cause a mass of landlords to leave the buy-to-let sector and cause instability throughout the UK economy.

In last year’s Budget, the Chancellor announced several changes to landlord finances.

From April 2017, buy-to-let landlords will lose the ability to offset all of their mortgage interest against income tax on rent.

Two landlords have been leading a legal challenge against the change, and HMRC is expected to respond by 16th March.

Additionally, the automatic 10% Wear and Tear Allowance will be replaced from 1st April. Landlords will only be able to claim back on work that has actually been completed.

And while significant figures such as Cunliffe have expressed concerns over these additional costs, research among landlords suggests that rents will be forced up as a result, and many are thinking of leaving the sector. In fact, a recent study from the National Landlords Association (NLA) has found that the number of landlords thinking of leaving the buy-to-let sector has quadrupled in six months in central London.

However, economic analysts expect any interest rate rises to be postponed until 2020.

Indeed, the buy-to-let sector is proving buoyant at the present time. Since the beginning of the year, there have been many reports of a booming market, as landlords look to expand their portfolios ahead of the 1st April Stamp Duty deadline.

As of 1st April, buy-to-let landlords and second homebuyers will be charged an extra 3% in Stamp Duty on properties worth over £40,000. Conveyancers have recently called for the plan to be scrapped.

Although it is expected that buy-to-let investment will decline after the surcharge is introduced, the booming market suggests that landlords are confident in the sector and do not expect the forthcoming tax changes to be much of a threat to their finances. If landlords stick with the sector, perhaps the economy will not fare too badly.