Vanessa Hale
Director, Research
Residential market remains active, although transactions remain low by historic standards.
Some details have finally begun to emerge on what has been agreed with regards to Brexit negotiations. The UK will pay approximately £40bn in a ‘divorce bill’, UK workers in the EU and EU workers in the UK will keep their rights for a maximum of five years after the UK leaves the EU, and both sides have agreed not to erect a hard border between Northern and Southern Ireland and support the ‘all island economy and the protection of the 1998 agreement’. This progress has meant negotiations can now begin on a trade agreement between the UK and the EU.
The National Institute for Economic and Social Research estimates that the UK economy grew by 0.5% in Q4 2017, and forecasts that growth over the whole of 2017 was 1.6%. This shows that momentum has increased as the year has progressed but it is still below what was seen at the end of 2016.
The ICAEW Business Confidence Monitor which looks at UK sentiment reported a score of -3.4 in Q4 2017 which is an increase from Q3 2017 (-8.0) and higher than the -8.7 recorded a year ago, it is still negative. This means business confidence has been negative for five out of the last six quarters with likely causes being inflation reaching 3.0% in December, the interest rate rise and the continuing lack of clarity on Brexit. Additionally, rising costs for businesses (apprenticeship levy, business rates, living wage), coupled with the weak exchange rate, may still impact the domestic market, both by increasing costs for domestic firms and making imports more expensive. In 2017 inflation has been above the Bank of England’s target rate (2.0%) for most of the year declining to 3.0% in December. The BCC expected it to outpace earnings until 2019 which will erode real wages and is likely to result in lower consumer spending. This is particularly worrying considering consumer spending is a key driver of economic growth for the UK.
The official bank rate remains at 0.5%. The rate remains very low by historic standards, but it will increase mortgage rates for some households, as well as increasing savings rates for others. Financial markets are indicating two more interest rate increases over the next three years, taking the official rate to 1.0%.
The FTSE 100 has registered another set of strong growth figures for Q4 2017. This follows a trend of having experienced generally positive growth since the EU Referendum, although there continue to be periods of volatility. As for productivity and unemployment, unemployment remains very low whilst for productivity, the ONS measure of output per worker increased by 0.9% compared to the previous quarter, representing the biggest increase since Q2 2011. This increase however was a result of a reduction in the number of hours worked rather than an actual acceleration in the growth of output.
In the Autumn Budget, Philip Hammond announced a Stamp Duty Land Tax relief for First Time Buyers (FTBs) in England, Wales (until 1st April 2018 when Land Transactions Tax goes into effect) and Northern Ireland to purchase a residential property for £500,000 or less and provided the purchaser intends to occupy the property as their only or main residence. The FTB purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling or an equivalent interest in land situated anywhere in the world. If the property is purchased jointly, all the purchasers must meet these conditions.
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