THE UK MARKET IN 2016: A SUMMARY FROM THOSE IN THE KNOW!
The UK ended 2015 as one of the fastest growing of the major developed economies. Unemployment is falling, the housing market is hot and consumers are happy to spend money in the shops or online. For at least the first half of 2016 it will be a case of more of the same. The reason is simple. The UK economy has plenty of momentum thanks to almost seven years of zero interest rates, rising living standards and government incentives to buy property. Even if there was a sudden nasty shock, it would take time for the effects to show up.
As it happens, recent developments have been positive for growth. The fact that motorists can find petrol for less than a pound a litre reflects the tumbling price of oil on the global commodity markets. That will cut business costs and raise corporate profits while at the same time cutting domestic heating bills and the cost of travel.
Falling oil prices will also limit the pick-up in inflation, which has been lower for longer than most forecasters expected a year ago. For most of 2015, inflation has hovered at around zero, and there is no immediate prospect of it rising back to the government’s 2% target. Low inflation means the Bank of England is under little immediate pressure to raise the cost of borrowing, and plentiful supplies of cheap credit are providing a further fillip to growth. Mortgage rates have never been lower.
For all these reasons, 2016 looks likely to get off to a flying start. Adam Slater, economist at the consultancy firm Oxford Economics, says he expects the US and the UK to compete for the title of fastest-growing economy in the G7 group of industrial nations.
The second half of 2016 is more uncertain. One obvious factor is the referendum on
Britain’s membership of the European Union. If the result looks like being close, there could be a short-term impact on confidence and investment decisions that would be prolonged if there was a vote for Brexit.
House price rises of up to 8% in some parts of the UK and an increase in the number of homes sold are on the cards in 2016, property experts have forecast. This is down on the 10% increase seen this year, and there are a number of factors that could have a significant impact on the market’s trajectory over the year and beyond.
Interest rates are one of the biggest unknowns. The Bank of England’s governor,
Mark Carney, has made much of forward guidance since starting his tenure in 2013, but the timing of the UK’s first rate rise since the financial crash is still unclear. The main forecasters are factoring small rises into their predictions. At the Royal Institution of Chartered Surveyors (Rics) where a 6% increase in prices has been predicted, its chief economist, Simon Rubinsohn, said he had worked on the basis of a 0.25 percentage point rise. “If the US rate rises again we might start to see mortgage rates rise,” he said. “I would imagine that the best value mortgage rates have been around already.”
