The Forecast Issue
The Waiting Game
It’s still too soon to know how the ‘conscious uncoupling’ will affect the economy in the short term.
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The vote to leave the EU took the markets by surprise and has hit sentiment, but nothing can actually change until the UK’s exit become formal. When Article 50 is invoked, the clock starts ticking and there will be two years in which to negotiate an orderly exit. But up to that point, the UK remains a member of the EU, with all the rights and freedoms of trade.
The new government may not be a different colour, but it does seem to have an altered approach to austerity. Allowing there to be more slack in the public finances to help smooth the UK’s transition will be welcome news to many, and will help to support the economy through challenging times.
The economic indicators with the biggest bearing on the housing markets are GDP, inflation, interest rates and the labour market. Most economists agree that leaving the EU will have a negative effect on GDP and as a result on household income growth, which is crucial for housing. Uncertainty is the biggest problem and that will affect investment decisions and hence the pace of economic growth. However companies which said they would move from the UK on a vote to leave the EU, have yet to make any arrangements to do so.
The UK is a big importer so the 10 per cent fall in Sterling means we should expect inflation to rise significantly. That will erode households’ real spending power which in turn will affect economic growth and demand in the housing market. However, the Bank of England and its Monetary Policy Committee has cut rates and introduced more quantitative easing to provide some boost. But today’s times are very different to 2008/9. The credit crunch was the major cause of the deep and lasting recession we faced then, but banks are much stronger and more resilient, so the lending markets for investment - and housing will still be able to function and satisfy demand.
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