Looking Forward to 2015

We should be able to look forward to building on the positives of 2014 despite a number of challenges and uncertainties on the horizon !

The Positives …..

UK economic statistics, published by ONS, reflect a generally positive outlook:

  • UK inflation (CPI) fell to a 12-year low at 1% (from 1.3% in October),
  • GDP grew by 0.7% in the third quarter of 2014, being 2.6% higher than in the same period in 2013, although growth has slowed from 0.9% in Q2 2014.
  • Unemployment fell by 63,000 to 1.96 million in the three months to the end of October, a rate of 6%, matching its lowest level in six years.

 

Against this background, the UK Economy is performing relatively well and has been recovering at a stronger rate compared to other G7 economies since early 2013. Despite this stronger growth, the Office for Budget Responsibility (OBR) has revised up its estimate of the budget deficit this year, but still forecasts the budget to be back in balance by 2018-19.

In terms of interest rates, PWC expect base rate to remain on hold in the short term, but then to be increased gradually from mid-2015 onwards, perhaps returning to around 4% by 2020; the firm advises that both businesses and households should start to prepare for this upward trend now.

The housing market has been supported by the Chancellor in his Autumn Statement with revision of Stamp Duty Land Tax, lowering this tax liability for purchase of residential properties costing less than £937,500. Two of the UK’s biggest house-builders, Barratt and Persimmon, each report that about 30% of their new house sales utilise the support of the Government’s ‘Help to Buy’ scheme, which is due to run until 2020.

….. some Challenges …..

Commentators in the property industry consider that major changes in the way people want to live and work, and Government support for these changes, will have an increasing impact, examples being a trend toward urban living, office to residential conversion, hot-desking, last mile delivery distribution hubs, ‘right-sizing’ of supermarkets, and e-commerce. The industry knows these trends are here to stay and must embrace the challenges and opportunities they present.

Whilst new non-Bank entrants to the market are actively providing property-related lending, there are concerns as to the dearth of development finance for speculative projects, particularly in respect of schemes which would address lack of Grade-A office space which, in many cities, is perceived as becoming a threat to growth.

….. and the Uncertainties !

Results of recent surveys by Deloitte and EEF The Manufacturers’ Organisation reveal that political uncertainty ahead of the UK General Election (7 May), the weakening Eurozone economy and the possibility of Britain leaving the EU, are hitting confidence across British businesses.

The prospect of a hung parliament, in which smaller parties hold the balance of power leading to a greater risk of political instability and the possibility of more radical policy changes, is making firms more wary as to how this may impact on UK plc.

There is more concern being expressed now than three months ago about the weak Eurozone economy, teetering on the brink of deflation; the surveys took place before Greece’s debt crisis escalated late last month, triggering a snap general election on 25 January. Fears were also expressed that geopolitical tensions abroad will hit demand this year with little optimism that Europe or the Middle East will provide much new business growth.

However, respondents were more upbeat about UK economic prospects, which could finally feed through to workers’ pockets, and they predicted wages in their own companies would rise by an average of 2.9% in 2015, probably well ahead of inflation.

The general view seemed to be that “the UK economy is going in the right direction, but domestic politics is casting a big cloud”.