UK ECONOMY SOLID IN THE FACE OF GLOBAL WEAKNESS
2015 marked another year with no change in interest rates. December was the 81st consecutive month in which rates were held at 0.5% and forecasts of the next rate rise were pushed out to mid 2016 and beyond.
There were plenty of positive indicators for the UK economy – rising wages, increased consumer spending, expanding employment, strong service sector growth, even manufacturing output strengthened over the summer months, while exports, which had been dented by a strengthening pound, recovered in Q3 2015. However, despite all the encouraging economic data from the UK, instability in other parts of the globe and threats from emerging economies and China in particular, were enough to persuade the Governor of the Bank of England that the time was not yet right to raise interest rates.
“Central London residential has moved into a phase of low activity, low growth”.
On the back of cheap energy, supported by low oil prices, inflation remained doggedly low throughout the year, at times dipping below zero. Until that changes, interest rates are likely to remain very low too, which means that rising wages are driving growth in real income levels. As spending power increases, price growth will follow and with it the return of inflationary pressures in the economy.
The Chancellor is not the only one pleased with the performance of the UK economy. The IMF said in October that “Britain’s economy is still solid in the face of global weakness”. It forecast that the UK economy would grow by 2.5% in 2015, (it grew at an annual rate of 2.25% in the first half of 2015), settling to 2.2% in 2016. In the view on the IMF, the Bank of England could consider raising interest rates before long.
Autumn Statement 2015
London Help to Buy
From April 2016 a prospective buyer with a 5% deposit can borrow 40% of the purchase price of a home up to £600,000, and the loan will be interest-free for 5 years.
Shared ownership Help to Buy
From April 2016 the limit on household income to qualify for shared ownership help to buy will be raised to £90,000 in London (£80,000 elsewhere in the UK).
Stamp Duty Land Tax (SDLT) on Additional Homes
An extra 3% will be added to Stamp Duty for homes described as ‘additional’, which includes second homes and investments.
It is worth noting that SDLT on purchase can be offset against CGT on sale.
Additional SDLT payable from 2016:
Purchase price Additional 3% SDLT
On the 17th December, the American Central Bank raised interest rates by a quarter of a percent to 0.5%. The move was welcomed by savers and clears the path for a similar increase in Britain in 2016.
Low interest rates are a boon to residential markets. The combination of low borrowing costs and policy designed to help first time buyers, has inevitably led to house price growth which has spread beyond London and the south east in 2015, with many UK regions recording annual growth of 5% or more this year.
The terror attack on Paris in November shocked the world. London, like other world cities, was put on high alert. An escalation of this kind of violence probably poses a greater threat to London’s economy than any other single factor.
The prospect of what has become known as ‘Brexit’, following an EU referendum, has slipped from the headlines but it too has the potential to destabilise the economy and dampen growth in the first half of 2016.
As the year ended the fall in global oil prices was an area of concern to the financial markets but was a welcome relief to UK consumers at the petrol pumps.
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