The Commentary Budget 2017 was written by Laurence Sanders, Independent Economist and Treasury Consultant. From a housing market viewpoint, Chancellor Hammond’s Budget is significant in three respects.
The Office for Budget Responsibility (OBR) has upgraded its UK economic growth (GDP) forecast to 2% in the new fiscal year. Whilst this level is compatible with the Quarterly Commentary forecast of circa 2% in calendar 2017, the Budget longer-term economic forecast appears conservative in more ways than one. I continue to predict that the annual growth rate will steadily increase, reaching long -term trend level – circa 2¾% per annum, in fiscal year 2019/20. The higher business risk factor following the Brexit vote is likely to be balanced by the combination of very expansionary monetary UK policy, plus the higher level of global economic growth. In sector terms, the macroeconomic outlook comprises a more subdued growth rate of personal consumption (as retail prices rise), that is likely to be more than balanced by long overdue upturns in both net exports and business investment – including the housebuilding sector, where the imbalance between housing supply and demand in the UK, overall, has reached new highs.
Whilst fiscal policy remains one of gradual tightening, the government sector continues to make a moderate contribution to economic growth. Net public borrowing, is projected by the Chancellor to be £58 billion in the new financial year, falling very gradually in subsequent years. Currently monetary policy is the authorities’ key driver of economic growth, and this factor is likely to remain a significant driving force of the UK economy until the end of the decade. Following the Budget, forward money markets continue to predict that bank rate will remain unchanged throughout 2017 and 2018. However, should there be further sustained downward pressure on the currency, the MPC might well respond with a ¼% bank rate increase.
Despite the significant shortages in both owner-occupied and rented accommodation, Budget references to the housing market focused on words rather than action. The Chancellor did at least recognise that a high proportion of young people are concerned about getting on the housing ladder. There is a major challenge in respect of the cost of rented accommodation. For a great many people, private sector rents may be as high as monthly mortgage payments. The key challenge is raising the requisite deposit. Given the ever-increasing gap between the rate of growth of average house prices and the growth rate of personal disposable income per head, the owner-occupied housing market is increasingly dependent on family financial support, plus initiatives such as part-buy, part rent properties.
This post was provided by our partner, Agent Online. Please note that the above information is believed to be correct at time of publication and represents a professional view at one moment in time.
Click here to find out more about Agent Online’s Estate Agency service.
