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Wishing you all a Happy, Healthy and Prosporous 2010

From all at 1 STOP Financial Services

According to the Confederation of British Industry (CBI), the UK economy is expected to exit the recession in the 4^th quarter of 2009, growth will remain “fragile” and subdued for some time to come, with GDP unlikely to reach pre-recession levels by the end of 2011.

 In its latest economic forecast published on 21^st December 2009, the CBI predicted the recession would end when UK growth resumes in the 4^th quarter of 2009, helped by consumers bringing their spending forward to beat the VAT rise.

However the business group added subsequent growth in the first two quarters of 2010 will be weak at 0.3 per cent, but this should strengthen as the global economic recovery gathers pace, businesses rebuild stocks and household spending recovers.

As a result, the CBI has predicted annual UK GDP growth of 2.5 per cent in 2011, following 1.2 per cent in 2010.

However, despite two years of economic expansion, UK GDP will still not have returned to its pre-recession level by the end of 2011, which illustrates the depth of the recession and the weakness of the economic recovery.

John Cridland, deputy director-general of the CBI, said: “The outlook is brightening as the global economy finds its feet, although we will need to keep our nerve during early 2010, and there is no sign of a clear driver of strong economic growth.

“In the spring many staff will face another cycle of wage freezes, and job losses will continue rising until the autumn. Although the first few months of 2010 will be difficult, growth will gradually pick up and increasing confidence and demand will lead the UK into a more positive 2011. Consumer spending looks to be slightly more resilient than we first thought, and a weaker pound will help to support export growth.”

“However, the economy will be on a fragile path of very slow growth, as we continue to feel the lasting effects of the financial crisis. And it remains vital that government sets out clearer plans to address the fiscal deficit at its next opportunity in order to help shore up future UK economic prospects.”

Meanwhile, the CBI expects unemployment to continue rising over the coming quarters, but peaking slightly lower than previously forecast, at just over 2.8m in the third quarter of 2010.

Elsewhere in the report, the CBI forecast that the planned VAT rise in January will push CPI inflation up sharply before it eases back during 2010 and falls below the Bank of England’s 2 % target throughout 2011.

The UK Bank rate is forecast to start rising in spring 2010, as the Bank of England withdraws some of the monetary stimulus in order to minimise the risk of undesirable inflationary pressure in the medium term.

The CBI said the Bank rate is expected to reach 2 per cent by the end of next year, with no further rises during 2011, to assist the sustainability of the recovery as fiscal policy begins to tighten.

Ian McCafferty, chief economic adviser at the CBI, said: “The UK economy faces a number of structural hurdles over the coming two years, and this recovery – like that of the 1980s – will be relatively drawn out.

“Credit conditions will remain difficult as the banks slowly nurse themselves back to health, consumer spending will be shaped by the need to rebuild savings, and the public sector will soon have to tighten its belt. All three factors will act as headwinds to growth.”

A new independent survey has found IFAs are rated by consumers as the “most fair” of the financial services professions.

The ‘Fairness Index’, produced by the Financial Services Research Forum at Nottingham University Business School, looks at consumer perceptions of fairness with regards to financial services. The Index takes into account a wide range of measures including impartiality, familiarity, courtesy and communication.

The Index found IFAs enjoy by far the highest ratings on overall fairness, with an index score of 84 out of 100, significantly higher than the industry average of 72. When the data is broken down further, IFAs also rate the highest across each of the fairness measurements.

Brokers/advisers were followed by building societies (75), investment companies (73), Life insurers (72), and general insurers (72). Banks (68) and credit card companies (63) received the lowest ratings.

Chris Cummings, Director General of AIFA, commented: “AIFA strongly welcomes these impartial findings on fairness from the Financial Services Research Forum, and believe they provide a strong endorsement of the IFA profession.

“Not only is the profession the most trusted, but it is also regarded as the most fair – this is no mean feat given the recent economic conditions. It also further reaffirms that the public recognises the IFA profession’s core value: ‘The guiding light is to do well by the client’.”

The Bank of England’s Monetary Policy Committee (MPC) has announced that the base rate of interest has been frozen at a historic low of 0.5% for the ninth month in succession.

The MPC also voted to continue with its programme of Quantitative Easing (QE) – which was extended by an additional £25 billion last month to £200 billion – a move welcomed by businesses who believed that the economy would stall without it.

According to the Halifax House Price Index house prices rose by 1.4% in November. Prices increased for the fifth consecutive month with the average house price up by 4.2% (£6,803) in the first eleven months of 2009.

Commenting, Martin Ellis, housing economist, said:
“The recovery in house prices since the spring has been driven by increased demand for property, largely due to the improvement in affordability for existing homeowners and first-time buyers who can raise the necessary deposit.

Somewhat higher demand has combined with a low level of properties available for sale to push up prices.  Further ahead, the prospects for the market will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale. Overall, our view is that house prices will be flat during 2010.”

Key facts
- Prices over the period September to November were 3.7% higher than in the previous three months. This is the biggest increase on a three monthly basis since November 2006.

- Prices have increased by 8.5% since reaching a trough in April 2009; an increase in the average price of £13,174. This follows a decline of 23% between August 2007 and April 2009.

- House prices in November were 1.6% lower on an annual basis. The annual rate of change (measured by the average for the latest three months against the same period a year earlier) has improved significantly from a low of -17.7% in April.  

- Housing market activity continues to pick up. Completed house sales in England and Wales were 11% higher on an annual basis in August, according to the latest Land Registry figures.

- Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase, a leading indicator of completed house sales, increased, on a seasonally adjusted basis, for the eleventh successive month in October.

- Approvals were 79% higher than in October 2008 and were at their highest level since March 2008.  Despite this improvement, approvals remain 56% below their late 2006 peak.

- Increasing demand and low supply are causing house prices to rise. The increase in sales in recent months has outpaced only a modest rise in the stock of properties available for sale. 

As a result, the ratio of house sales to the stock of unsold properties on surveyors’ books increased for the tenth consecutive month in October. The increase in this ratio suggests that market conditions will provide further support for house prices in the short-term.

According to Nationwide House Price Index for November 2009, house prices increased by 0.5% – the same rate as in October.

The Lender also reports that year-on-year house price inflation has increased from 2.0% to 2.7%, and states that the Labour market has so far held up better than expected this year.

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:

“The monthly rate of house price inflation for November is at a seasonally adjusted 0.5%, leaving the average price of a typical property 2.7% higher than a year earlier. At £162,764, the average house price is at a similar level to where it was in early 2006.

The 3 month on 3 month rate of change – generally a smoother indicator of the near term trend – dropped to 2.8% from 3.5% in October and 3.8% in September. This suggests that house prices are now rising at a more moderate pace than in the spring and summer months, when they experienced a very strong bounce from the early 2009 lows.

“The outlook for the housing market remains crucially dependent on labour market conditions, and here recent developments have been somewhat more encouraging than might have been expected.

With the UK experiencing its longest and deepest recession since WWII, most economists expected unemployment to increase very sharply in 2009, perhaps breaching the psychologically important three million mark by the end of the year.

While unemployment has indeed increased noticeably, the rise has not been as rapid and pronounced as previously feared. Based on the latest labour market figures from September, it now looks unlikely that the jobless total will reach three million before the year is up.”