UK headline economic statistics have been kinder than expected in post-referendum Britain but few now expect such a benign outlook to continue long into 2017 given the extent of uncertainty surrounding the terms on which the UK will be able to conduct its business with the rest of the world after 2019.
It seems inevitable that the impact of a weak currency will begin to show in inflation trends and balance of trade as imported goods become more expensive for UK buyers. The reverse of course, is the hugely beneficial impact of a weak currency on the amount of money spent by overseas visitors in our shops.
The UK economy grew by 0.5% in the third quarter of the year. Business investment rose as did consumer spending. The ONS reported that the economy had, so far, ‘shown limited signs of having been impacted by the EU referendum.’
On the thorny subject of Brexit, as long as there is uncertainty around the outcome of the negotiations, businesses must make contingency plans for the ‘worst case scenario’. Banks are particularly sensitive and, in the City, they are already in the throes of setting up parallel operations within other EU cities, most often Dublin or Frankfurt, so that they can transfer operations seamlessly and continue to service their clients’ needs, in the event that the negotiated settlement is not favourable.
The Office for Budget Responsibility revised down its forecast for economic growth to 1.4% for 2017, substantially below its previous forecast of 2.2%.
It is estimated that the UK economy will be £122 billion worse off by 2020 than previously thought. The UK’s low interest rate environment seems set to persist for some time to come. The Bank of England has indicated its intention to keep rates low to protect the fragile post-Brexit economy in spite of inflationary pressures. In a speech in November, Ben Broadbent, the deputy governor of the Bank of England, noted that the real price of shares was the same today as it was 20 years ago and that the same is also true of house prices. Of course that does not reflect the growth trajectory of the London housing market over the past two decades.
In as far as Brexit affects demand for property in our markets, there are no immediate job losses as a result of Brexit. There may be a greater tendency to rent rather than buy and the possibility of reduced demand in the longer term. Subdued hiring from the corporate sector reduced new rental enquiries in Q4.
The other stalwart of our markets, the tech sector, appears to have given London an enormous vote of confidence. Google confirmed its commitment to a European headquarters at King’s Cross, Apple announced that it would consolidate its operations at Battersea Power Station and the Malaysian Digital Economy Corporation (MDEC) announced that it would open a base in London to promote trade with digital businesses.
The Chancellor did not take the opportunity to reduce stamp duty in the Autumn Statement despite robust lobbying from a number of organisations. The calls for some concessions on stamp duty rose in the weeks following the Autumn Statement with headlines reporting steep falls in transaction volumes and greatly reduced tax take for the exchequer. The Bank of England issued warnings about the risk of banks being over-exposed to buy to let lending. Ironically, given that almost all rental property is in the hands of small landlords, his statement could actually cause the very instability he fears by prompting landlords to sell out of their investments.
In a further knock to the private rental sector, the Chancellor proposed that agents should be banned from charging of fees to tenants – there is a cost to work involved in arranging and documenting new or renewed tenancies and that cost will now be carried by the landlord who, in order to preserve an acceptable rate of return on investment will hope to pass it on to the rent. This, on top of the 3% stamp duty levy on additional properties, the reduction in tax reliefs and extra management obligations is seen by many now as part of an on-going ‘war on landlords’.