POST-ELECTION ECONOMIC UPDATE. Public

Transcription

1 POST-ELECTION ECONOMIC UPDATE Created by: Andrew McPhillips Public

2 THE INTERNATIONAL ENVIRONMENT IS LESS POSITIVE THAN SIX MONTHS AGO Growth has slowed in the major economies of China and the US. The Eurozone remains weak and vulnerable to breakup. As ever the UK economy is vulnerable to international pressures. Though many commentators believe that recent soft data is a temporary blip, it will likely be enough to stop central banks tightening monetary policy this year. 2

3 INTEREST RATES AROUND THE WORLD ARE AT HISTORIC LOWS AND LOOK LIKELY TO REMAIN THERE Just 12 months ago some were forecasting that the Bank of England would increase interest rates by the end of Instead, it looks unlikely to occur before 2016 with a similar story in the US. The Eurozone is still using quantitative easing to avoid deflation and to try and kick start growth. Expect interest rates to stay very low for the next few years. Will likely avoid deflation but persistent lowflation remains a likely result. Central Bank interest rates (%) Prerecession 5 yr average Prerecession peak Current level First increase expected UK Aug 2016 US Mar 2016 Eurozone Feb 2017 Inflation rates (CPI, YoY, %) Prerecession 5 yr average Prerecession peak Current level Target UK 1.9% 3.1% -0.1% 2.0% US 2.9% 4.7% -0.2% 2.0% Eurozone 2.2% 3.6% 0.0% <2.0% 3

4 THE UK ECONOMY APPEARED TO PERFORM WELL UNDER THE COALITION GOVERNMENT Growth returned to the UK economy and at a higher rate than other G7 nations last year. Unemployment fell from its peak of 2.71m (8.5%) in November 2011 to 1.83m (5.5%) in March The housing market has recovered, though the London market could also be seen as a cause for concern. 4

5 BUT THERE ARE STILL SOME CAUSES FOR CONCERN The Government s aim of eliminating the deficit by the end of the Parliament was missed. Last year the deficit was 87.3bn. Wages have not been growing and productivity remains low. Consumer spending remains the dominant source of growth. The UK s trade performance continues to disappoint. The recent strengthening of Sterling is likely to exacerbate this. 5

6 THE SURPRISE CONSERVATIVE MAJORITY IMPLIES FURTHER PUBLIC SPENDING CUTS Benefit and tax credit spending not explicitly protected by Conservatives, billion, The spending plans outlined before the election implied spending cuts of 15% to nonprotected departments over the next five years. The Conservative manifesto also committed to a target of 12bn of welfare savings. The government will provide revised plans in an emergency budget on 8 th July. Source: IFS Year-on-year real growth in resource DEL 6

7 THE QUEEN S SPEECH SET OUT THE FOLLOWING PRIORITIES Cutting the deficit Raising productivity Reduce regulation on small businesses to help them employ people Ensure anybody working 30 hours on NMW does not pay income tax No rises in income tax rates, VAT or NI in the next five years Increasing the provision of free childcare Right to Buy for housing association tenants Reform of trade unions Further benefit caps 7 day NHS with increased budgets Devolution for areas with elected mayors EU referendum before the end of

8 THE Y&H ECONOMY STILL LAGS BEHIND MOST OF THE UK The employment rate in the three months to March was 71.9%, down from 72.7% at the end of 2014 which was an eight year high. Unemployment rate increased in Y&H to 6.7%, one of four regions to see an increase though this was still down 1.5 percentage points on a year earlier. GDHI per head of 15,252 in Y&H, below the UK average of 17,559 and only the North East and Northern Ireland were lower. 17.3% of children living in workless households at the end of UK average of 12.7%. Annual growth in Gross Disposable Household Income per head (GDHI) 8

9 I REMAIN CAUTIOUS ON THE OUTLOOK FOR THE REGION (AND THE UK AS A WHOLE) Further devolution powers appear unlikely without an elected mayor, which the electorate has already rejected. We have some areas that rely heavily on public sector employment (18.7% of total employment) and spending. The EU referendum will affect investment decisions. I expect the UK will remain within the EU but the sooner the issue is resolved the better. Though the fact that Y&H is behind on some key economic measures suggests that there is now an opportunity to play catch up. The recent focus on the Northern Powerhouse has raised the profile of the region and will no doubt provide a lift to the economy. Infrastructure remains the main obstacle high speed rail is still a long way away. 9

10 HOUSING AND MORTGAGE MARKETS 10

11 THE UK HOUSING MARKET WAS A TALE OF TWO HALVES IN 2015 A strong start to the year saw transaction levels stall and price gains slow in the second half. Some of this may have been due to the mortgage market review (MMR), a pre-election pause or a sign of a more permanent change in the housing market. RICS members remain positive that sales volumes and prices will increase over the next three months, though not to the scale witnessed last year. 11

12 THE Y&H MARKET FOLLOWED A SLIGHTLY DIFFERENT PATTERN TO THE NATIONAL AVERAGE Transactions in the region were actually greater in the second half of the year, the opposite to the national trend. Could be a sign of regions trailing the London and South East trend which drove the national headlines? Prices followed a similar trend to the national average though fell away much more quickly in the second half of the year. RICS members in the region are around twice as optimistic on the outlook for sales and prices in the region than the national average. 12

13 THE MORTGAGE MARKET FOLLOWED A SIMILAR PATTERN WITH LENDING SLOWING IN H Lending volumes slowed in the final quarter of 2014 as demand for housing fell. This continued into 2015 though there are tentative signs that post-election things may be picking up again. Interest rates have continued to get lower but may now have reached the bottom. Buy to let lending has seen a strong resurgence alternative to pensions? 13

14 HOUSING WAS A KEY POLICY AT THE ELECTION BUT IT IS UNLIKELY THERE WILL BE ANY FUNDAMENTAL CHANGE Despite talk of 200, ,000 new homes being built each year, the Conservative manifesto did not contain any specific commitments. The extension of Right to Buy to housing association tenants will do little to resolve the housing crisis. The Government has committed to 200,000 starter homes, sold at a discount of up to 20% to first time buyers, by Still waiting to see the results of Stamp Duty changes. There is ample land available to develop, local objections to building need to be dealt with. 14

15 POLITICAL OUTLOOK 15

16 ELECTION OUTCOMES Tory majority government Resignation of two major party leaders, as well as rise of SNP and only 1 MP each for Greens & UKIP Changes here in Bradford: MP defending seat David Ward MP (Lib Dem, Bradford East) Gerry Sutcliffe MP (Lab, Bradford South) George Galloway MP (Respect, Bradford West Kris Hopkins MP (Con, Keighley) Philip Davies MP (Con, Shipley) Still same MP? No New MP is Imran Hussain (Lab) Stood down but Labour retained seat. New MP is Judith Cummins (Lab) No New MP is Naseem Shah (Lab) Yes Yes 16

17 UPCOMING KEY POLITICAL EVENTS Summer Budget (July 2015) Chance for Chancellor to put his political stamp on tax and spend directions of Tory Government. Labour Leadership & Deputy Leadership Contest (ongoing) Liberal Democrat Leadership Contest (ongoing) Scottish Parliament Election (May 2016) EU referendum (Before end of 2017) Devolution to Manchester with appointment of Tony Lloyd and City Mayor election 17