Economic Forecast published by the CBI
December 21st, 2009According to the Confederation of British Industry (CBI), the UK economy is expected to exit the recession in the 4th 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 21st December 2009, the CBI predicted the recession would end when UK growth resumes in the 4th 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.”
IFAs are rated by consumers as the “most fair”
December 17th, 2009A 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’.”
Bank Base Rate stay on hold
December 10th, 2009The 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.
House prices rose by 1.4% in November
December 8th, 2009According 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.
House prices still increasing – November figures from Nationwide
December 1st, 2009According 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.”
Chancellor called upon to aid the housing market recovery
November 30th, 2009The Chancellor, Alistair Darling has been called upon by the National Association of Estate Agents (NAEA), to further aid the housing market recovery and avoid sending Britain into a ‘W’ shaped recession.
In a submission delivered to Downing Street, the NAEA calls on Mr Darling to:
- Immediately extend the current stamp duty holiday
- Conduct a longer-term review into the function of Stamp Duty
- Intervene in the mortgage markets to encourage banks to lend again
- Improve access to finance for first time buyers
- Suspend Home Information Packs
Peter Bolton King, chief executive of the NAEA stated:
“The current Stamp Duty holiday, for properties up to £175,000, is due to cease at the end of this year. This, coupled with the reversion of VAT to its original rate of 17.5% – and possibly beyond in the future – threatens to cause damage to the fragile recovery we have so far seen in housing sales, just at the time when further stimulus is drastically needed.
“It is clear that Stamp Duty is an outdated and unpopular tax that is out of date and out of place in today’s world. The NAEA calls on the Government to commit to examining the future of the tax to see how it can be amended to produce less regional inequality and to stop it acting as a barrier to entry to the housing market. We would welcome the chance to be part of this review.”
“The lack of available mortgage finance is significantly hampering the supply of, and access to, mortgages. Despite considerable public pressure, banks continue to restrict access to mortgage finance and charge rates far higher than the current level of interest rates. A more interventionist solution is now required to force banks to lend again.
Moreover, there are still significant consumer concerns about lending and the level of approvals. NAEA July research conducted among 1,860 respondents showed that nearly 25% felt that the lack of available mortgages was preventing them from purchasing property at the moment, and a majority (57.6%) felt that if the banks were to start lending again it would make a “big difference” to the property market.”
“First-time buyers are central to a properly functioning housing market but the lack of mortgage finance is particularly impacting on this group. High loan-to-value mortgages are being withdrawn and the consequent rise in the amount being demanded in deposit means it is becoming increasingly difficult to gain a foothold on the housing ladder.
“The NAEA calls on the Government actively to encourage lenders to provide high loan-to-value mortgages to enable first-time buyers to enter the market.
We recognise that high loan-to-value mortgages carry additional risk for the lender, so we are calling on the Government to actively promote the use by lenders of Mortgage Indemnity Guarantees (MIGs) or Mortgage Insurance on properties with a high loan-to-value ratio. We also call on the Government to examine the viability of running a state-backed MIG scheme for lenders.”
“The NAEA calls on the Government, once again, to suspend Home Information Packs. The cost of the packs punishes sellers, while more than three quarters of buyers – 77% – do not consider them before they decide whether to buy a property.
During a recession this is an unacceptable situation. The NAEA calls on the Government to immediately suspend HIPs while the UK economy is in recession, and to commit to re-examining their viability once the economy is out of recession.”
Inflation in the UK may rise ‘sharply’
November 11th, 2009According to Bank of England governor Mervyn King, inflation in the UK may rise ‘sharply’ over the next few months but is likely to fall back again in the medium term.
The increase would be triggered by VAT returning to 17.5% on 1 January 2010 and higher petrol prices. However, he believes inflation, which is currently at 1.1%, will then fall back in the medium term.
Presenting the Bank’s latest quarterly inflation report Mr King said the UK economy has ‘only just started’ down the road to recovery and lending by commercial banks would ‘probably remain weak over the next three years’.
His comments come a week after the Bank decided to pump an extra £25bn into the economy under its QE programme, bringing the total to £200bn.
House Prices continue to rise
October 29th, 2009The September data from Land Registry’s House Price Index shows that house prices in England and Wales have increased with a monthly house price increase of 0.9% up from 0.5% in August.
In Pembrokeshire house prices increased by 1.2% in September. The average house price is now £148,698.
The average house price in England and Wales is now £158,377. This is an annual drop of -5.6%, up from a low of -16.3% in February.
London experienced the greatest monthly price rise with a movement of 1.3 per cent. The average property price in the capital is now £314,954. All regions experienced a decrease in their average property values over the last 12 months.
The region with the most significant annual price fall was the North East with a movement of -8.2 per cent. Neath Port Talbot experienced the greatest annual price fall with a drop of 18.7 per cent.
The most up-to-date figures available show that during July 2009 the number of completed house sales in England and Wales rose by 9 per cent to 57,579 from 52,628 in July 2008. Monthly sales in England and Wales have risen steadily each month since January 2009 when they stood at 26,662.
