Economic overview 2019

By on Wednesday, January 1st, 2020 in Market Trends.

MARKETS RISE AFTER ELECTION RESULT

The economy has proved remarkably resilient against a backdrop of constantly shifting sands throughout 2019. After a night of high drama, the convincing election of Boris Johnson, with the highest Conservative majority since Margaret Thatcher in 1987, has broken the deadlock and removed the political uncertainty that has dogged the UK since the referendum vote in 2016. The UK is now more than likely to leave the EU at the start of 2020, stage one of the Brexit process looks to finally be complete.

The markets reacted positively to the news, the value of Sterling rising against the US $ and hitting its highest level since July 2016 against the Euro. On the stock market the FTSE 100 share index rose to 7,519 on 16th December, while the FTSE 250 rose 413 points reaching a recored high of 21,920..

The latest OBR forecasts remain those published in March, with no update likely until the Chancellor delivers a budget, anticipated to be February 2020. In one of the first independent assessments of how the economy will fare under the Brexit deal currently on the table, the National Institute of Economic and Social Research (NIESR) assert the UK will be £70 billion worse off than if it had remained in the EU, concluding that GDP would be 3.5% lower in 10 years’ time under the deal. The Treasury remain tight-lipped as to the economic impact of the current deal, it has said however, it plans on ‘a more ambitious’ agreement with the EU than the assumptions underpinning the NIESR findings. Mark Carney, the Governor of the Bank of England, welcomed the new deal saying it was “net economic positive” as it “takes away the tail risk of a disorderly Brexit”, however stated it “remains to be seen” if the overall deal would be as positive for the UK economy as the deal put forward by Theresa May. The reality; no-one really knows.

The UK economy remained static in the three months to October and is forecast to grow by just 0.1% during the final quarter. At 1.3% annual growth is set to be marginally lower than 1.4% recorded the in 2018 and the weakest since 2009, when the economy fell by 4.2% year on year.

Official employment figures confirm that the UK had record employment in Q3 of 76.2%. The number of people in work rose 24,000 in October to 32.8 million and unemployment fell to its lowest since 1975 at 3.8%. The latest employment survey released by KPMG and REC reports growth in demand for staff is at its lowest level in a decade, however the number of permanent placements available rose in several regions including London. Data from the IHS Markit/CIPS monthly Construction, Manufacturing and Service report all indicate the economy is in balance. All indexes were below 50 (50 divides growth from contraction) in November, although business optimism in the service sector registered a four-month high, while the construction sector recorded its slowest fall in four months.

Wages are currently rising at 3.6%, double the rate of inflation (currently 1.5%) and at 2.39% the average mortgage rate remain historically low.

Base rates were held at 0.75% in November, although 60% of households do expect the base rate to rise within the next 12 months (IHS Markit UK Household Finance Index). Continued consumer spending has been the main driver of economic growth since the Referendum but the latest editions of both the GFK indices and UK Household Finance Index, indicate consumer confidence in their personal financial situation is also stalling. Any reduction in consumer spending may well pose a risk to the economy longer term. The latest edition of both these surveys reports on sentiment prior to the election. Commentators will be watching with interest to see whether, as per the currency and stock markets, the election result has buoyed consumer confidence too.

The government’s plans to boost the economy post Brexit will be key to the UK’s performance in the next 12 months.

CONSERVATIVE MANIFESTO PLEDGES

The Conservative party has made bold spending pledges designed to boost the UK economy as it steps outside of the EU. Plans include a £20bn per annum infrastructure fund for roads, railways, schools and hospitals as well as measures to accelerate the UK’s knowledge economy. The government has already begun to amend the rules on student visas to allow foreign students to stay in the UK for two years after graduation as well as fast-track visas for science researchers. There are plans to use an Australian style points system to attract the ‘brightest and best’ to the UK after Brexit.

In terms of housing policy, the Conservative government is committed to expanding home-ownership and protecting renters. Policies in the manifesto include:

  • Target of 300,000 new homes per annum by the mid 2020s and a ‘promise’ of 1 million new homes by 2025, which would be largely delivered by the private sector.
  • A “First-homes” – which will be sold with a 30% discount for first-time buyers
  • An additional 3% Stamp Duty surcharge for non-UK resident buyers, which will take the top rate on the most expensive properties to 18%.
  • Extend the housing association Right to Buy pilot scheme from the Midlands to other areas.
  • Leasehold reform – ban new leasehold houses, introduce peppercorn ground rents • Life-time fixed rate mortgages with 5% deposits
  • End ‘no fault’ evictions, under s21, making it more difficult for landlords to regain possession of their investment properties but with strengthened possession rights for ‘good landlords’ and a dedicated housing court.
  • Lifetime’ deposits that move with renters between tenancies.
  • To simplify shared ownership.
  • To speed up the planning process.

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Economic overview 2019

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