The EY Item Club issued a downbeat Autumn Forecast in October saying that the economy ‘stuck in low gear over the summer, reflecting the squeeze on consumers’ real incomes and uncertainty over Brexit negotiations’.
With Consumer Price Index (CPI) inflation continuing to outstrip average earnings growth (despite the lowest unemployment dates since 1975 – 4.3%) and with business confidence still low, they expect the economy to continue to struggle until early 2018. The forecast that GDP growth for 2017 will reach 1.5% and inflation to reach 3% before the end of the year.
However, the Item Club do forecast that average earnings growth will overtake inflation as it falls back over the course of 2018. They expect inflation to be at 2% by the end of 2018 as the effects of the fall in sterling in 2016 fade. ‘This should bolster consumer purchasing power, while earnings growth should pick up gradually.’ The bank of England has been increasingly hawkish about the prospect of an increase in interest rates in the near future. Some commentators have suggested that they will have to raise rates in November in order to maintain credibility. The minutes of the September meeting of the Monetary Policy Committee does take care to state, though, that ‘All members agree that any prospective increase in Bank Rate would be expected to be at a gradual pace and to a limited extent’. The Item Club expect an raise from 0.25% to 0.50% in November with no further move until Q4 2018 once the response to the initial increase is clear.
In their September House Price Index report, Nationwide note that the impact of a small rise in interest rates is ‘likely to be modest’, in large part because only around 40% of mortgages are on a variable rate (down from a peak of 70% in 2001) and also because a 0.25% increase would cost the average mortgage-payer less than £200 a year. They also not, though that household budgets are already under pressure and so some households may struggle.
IHS Markit’s UK Household Finance Index for October 2017 is couched more positively that the Item Club. They highlight that ‘UK households saw financial pressure ease in October’ although the need for unsecured credit ‘continued to rise’. Overall, household sentiment reached a level better than the post-crash average and ‘the uptick in financial confidence contributed to a slight recovery in … appetite for spending on big ticket items … from the three year low seen in February’. That is despite increased concerns around job security.
However, recent ONS and CBI statistics show a drop in retail sales in September and if this trend continues, that could affect the Bank’s thinking on interest rates.
The RICS said that the results of their UK residential market survey for September ‘are again symptomatic of a market lacking momentum at the national level’ with ‘headline indicators on demand and sale [slipping] deeper into negative territory’.
In September, estate agents reported a decline in new buyer enquiries while instructions to sell stabilised following 18 months of decline. Average stick levels on estate agents books remain new record lows. The survey found little expectation of improvement over the next year although they report that respondents in Wales, Scotland, and Northern Ireland are a little more optimistic than those in England. That might be because London and the South East are currently worst hit by decline.
Nationwide found that in September, house prices in London fell for the first time in eight years. They lost 0.6% compared with Q3 2016.
The national picture on prices is very varied. The East Midlands saw a 5.1% increase compared with Q3 2016 and London was the only region to see a year-on-year fall. Nationally, the annual percentage change was 2.2% growth.
According to IHS Markit, household sentiment towards property value improved very slightly, but future house price estimations still have not recovered to their pre-referendum levels.
UK monthly house price statistics, Nationwide
|Monthly % Change
|3 Month on 3 Month
The government has announced an expansion of help to buy, garnering a mixed reaction from commentators, some of whom welcome help for first time buyers while others fear the cash will simply fuel house price inflation.
The Chancellor will deliver his budget on 22nd November and is widely expected to make changes to SDLT. It is not clear whether that will be a change to the higher rate for second homes and buy to let properties, a wider change in rates or a more radical shift of the tax from the buyer to the seller.
|CookieConsent||https://www.clc-uk.org/||Stores the user's cookie consent state for the current domain||1 Year||HTTP|
|_ga||https://www.clc-uk.org/||Registers a unique ID that is used to generate statistical data on how the visitor uses the website.||1 Year||HTTP|
|_gat||https://www.clc-uk.org/||Used by Google Analytics to throttle request rate||Session||HTTP|
|_gid||https://www.clc-uk.org/||Registers a unique ID that is used to generate statistical data on how the visitor uses the website.||Session||HTTP|
|collect||google-analytics.com||Used to send data to Google Analytics about the visitor's device and behaviour. Tracks the visitor across devices and marketing channels.||Session||Pixel|
|GPS||youtube.com||Registers a unique ID on mobile devices to enable tracking based on geographical GPS location.||Session||HTTP|
|VISITOR_INFO1_LIVE||youtube.com||Tries to estimate the users' bandwidth on pages with integrated YouTube videos.||1 Year||HTTP|
|YSC||youtube.com||Registers a unique ID to keep statistics of what videos from YouTube the user has seen.||Session||HTTP|