UK Housing
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UK House Prices Dip For The First Time In 5 Months

House prices in the United Kingdom (UK) declined 0.9 percent in January following a 1.6 percent rise in December, marking the first monthly drop since August of last year, mortgage lender Halifax reported in its latest House Price Index.

UK homes now sell at an average price of £220,260, pegging the annual growth rate in the last 3 months leading to January to 5.7 percent from December’s 6.5 percent.

Halifax noted that the shortage of houses available for sale will keep big price drops in check but cautioned that slower economic growth and a weaker spending power on the part of house buyers could dampen demand for housing, resulting in slower annual house price growth for 2017.

Other forecasters are also projecting the UK housing market to soften in 2017. Pantheon Macroeconomics’ chief economist Samuel Tombs said that while drops in month-to-month pricing are common, he pointed out that price growth for the housing market has fundamentally weakened since the June vote.

In its annual forecast, Halifax said UK house prices will grow by a mere 1 to 4 percent in 2017, with London house prices falling. This year’s projected price growth is significantly lower compared to 2016.  The firm’s economists cited the projected slowdown in economic growth, potential surge in unemployment and pressure on household incomes as the main reasons for the overall slump in UK’s housing market, which experienced growth for several years prior to last year’s referendum.

Financial analysis firm IHS Global Insight, commenting on Halifax’ report, said that price gains this year will hit its ceiling at 3 percent citing mounting caution on household spending and widening house price-to-earnings gap as main factors affecting overall prices.

Meanwhile, Halifax said that a total of 1.2 million homes were sold last year, up 0.4 percent from the year before. The company said its figures show that first-time house buyers in the UK grew by an estimated 7 percent to 335,750 during the last year, marking its highest level since the beginning of the global financial crisis in 2007.

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LONDON, ENGLAND - DECEMBER 14: A woman carries shopping bags off New Bond Street on December 14, 2009 in London, England. High street stores are expecting a bumper Christmas this year despite the economic dowturn, with shoppers spending around GBP £120 million in the past two days alone. (Photo by Dan Kitwood/Getty Images)
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Consumer Optimism Rises As Robust Jobs Outlook Boost Household Spending

British households opened 2017 in a bullish mood as the recovery in business optimism and a positive jobs outlook lifted consumers’ confidence to spend for both discretionary and essential items.

Deloitte, in it’s latest quarterly survey, found that five of its six gauges of consumer confidence went up, even as overall confidence trended lower in the last three months of 2016 compared to the same period in 2015. It said there was a significant increase in essentials spending in the months leading to Christmas. Spending on discretionary items likewise trended higher.

UK citizens also remained optimistic about their career and employment prospects amid a rise in real incomes and a relatively resilient jobs market, as consumers dismissed negative projections about the British economy following last year’s referendum.

Ian Stewart, Deloitte’s chief economist, noted that last year’s Brexit vote has not impacted consumer confidence on jobs outlook, particularly among the younger segment of UK workers.

Stewart attributed the rise in consumer confidence to real wage increases, high employment rate, credit growth and business optimism, noting that these factors kept the consumer confidence index stable.

Despite the upbeat results, Deloitte warns that the numbers may not hold up in 2017 as a weaker pound may push up prices resulting in higher inflation, which could adversely impact consumers’ overall purchasing power.

Elsewhere, analysts expect the Bank of England to upgrade its growth forecasts this week following a better-than-expected performance in the last three months of 2016. Observers are predicting the 2017 forecast to jump to 1.7 percent, from 1.4 percent in November. In August, growth was pegged at a mere 0.8 percent. This week’s revision will be second time in three months as the UK economy continue to defy expectations.

Despite the upward tend, Mark Carney, Bank of England’s Governor, cautioned that UK growth was becoming too reliant on consumer spending. He warns that UK’s consumption-led growth could lose momentum and prove “less durable,” pointing out that consumption growth would eventually overtake earnings growth.

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brexit-and-trump
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Why The “Experts” Are Getting It So Wrong

2016 has been a year of poor predictions. First the shock of Brexit and then Trump’s presidency, in amazingly similar fashion.  It appears that in the case of political events sometimes the media experts should admit that their prognostic abilities are very limited. A different outcome was predicted in advance of both of these events and therefore the initial reaction was panic. The markets quickly recovered however; in the American elections on the very same day and as for Brexit, it was announced shortly after the British stock market had reached an all-time high. Both cases showing no trace of the feared recession or “Catastrophe”.

The effects of Trump’s election were less pronounced than Brexit, with the market falling at night and recovering throughout the day. In a crazy turn of events, some of the closing rates were even higher than the day before, the Swiss stock market reporting a daily plus of 2%, with the dollar impact discussed in a previous post.

So why did the experts get it wrong?

It’s hard to answer this one specifically but some factors to take into consideration are:

a) The “experts” tend to use the voting polls to assess which way the election is going. The problem here is that the sample polls are either very small or from completely unknown sources. This has been shown time and time again to be largely unreliable.

b) The forecasting results from the surveys are based on past models.

c) In the case of the Presidential Election, Trump supporters were looked down upon in the lead up to the polls, this meant that you had a lot of silent Trump supporters who didn’t want to admit to supporting Trump until it came time to vote, similar to the “Bashful Brexiters” of the UK.

d) Another reason provided was that many of the people who voted for Trump were first time voters. Because experts didn’t think they would show up to vote they weren’t included in the ‘likely voter’ demographic forecasts.

e) No matter what the result, it is almost impossible to predict how the stock market will react in the long term. More immediate effects such as a quick drop e.g. Brexit can be more fairly assessed but medium and long term effects are unknown to everyone.

Since Donald Trump’s election he has promised to invest heavily in infrastructure, renewals, tax reductions and “great” economic growth. Hopefully, this means that he will have a positive effect on the American economy and American companies.

Trump has also said that Britain would be “at the front of the queue” for any trade deal after Brexit and Trump is keen to keep up our “special” trading relationship. This could eventually lead to a stronger pound which is great for British companies that import goods from abroad, but bad for British companies that sell their products overseas.

The story continues…

If you are unsure about your business’s financial future following the Brexit vote and US election then please get in touch. At Assured FD Services we have over 20 years expertise working as a full time and part time financial director for UK leading companies, therefore you can rely on the service we provide.