Market Insight - April 2015
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How Times Have Changed

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Rising Standards
Living standards are rising - at last.

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The UK economy has grown consistently for two years now, and the pace of growth is picking up. At 2.8 per cent the annual rate of growth throughout 2014 is the strongest since 2006, but in the final quarter the economy was three per cent bigger than in Q3 2013. This is the highest rate of growth among the most developed economies in the world.

Living standards are better too, although they have recovered slowly since the recession, largely because of slow wage growth. Better living standards bode well for confidence among consumers – and potential home buyers. Much of this is to do with the fall in oil prices and the rising value of Sterling, both of which reduce the cost of imported goods. In the long run, policies that boost productivity, and so increase real earnings, are likely to have the biggest impact on future living standards, rather than changes to the tax and benefit systems that the politicians quarrel about.

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While overall living standards are better, in general, younger people have not benefitted  s the economy has recovered, which has implications for the health of housing transactions. Analysis from the Institute for Fiscal Studies shows that those who are over 60 are much better off than they were, but those under 30 are much worse off. The group in the middle are now beginning to feel a little better off. So, movers are perhaps beginning to be in a better position, but first time buyers still have a lot of making up to do.

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Even so, the UK’s economic performance is definitely improving and with inflation now at zero per cent any rise in wages will translate immediately into higher living standards. That’s really good news, though we shouldn’t be too impatient. These improvements are starting from a low base so it will still be sometime before people feel as rich as they used to. Low interest rates will help, especially as credit conditions loosen, because mortgage lenders are increasing their risk appetites as economic conditions improve. Overall once the uncertainty of the election process is out    the way, there is definite room for further improvement.

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