Split the Difference
Stronger forecasts, but still lots of unknowns
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The Chancellor’s spring budget had very little in it for the housing market specifically. Apart from a tweak to the amount of tax relief on dividends professional landlord companies can claim, there was nothing to change the housing market status quo – a relief after the turmoil of the last few budgets!
But what was interesting was the new set of forecasts from the independent Office for Budget Responsibility (OBR), which looked remarkably buoyant. The OBR increased its 2017 forecasts for GDP significantly, which might be surprising given the likely shock to the economy of pulling the Brexit trigger. But the jam of higher growth in 2017 is taken away in subsequent years.
The OBRs expectations of property transactions were even more surprising. It factored in a 7% rise in activity compared with its November forecast, but the jam isn’t taken away in the later years as with GDP. That is great news for a recovery in sales, but there are still very large risks that could affect these forecast outcomes significantly.
Because the Brexit trigger wasn’t pulled when the forecasts were made, and because nobody knows how the negotiations will play out, the OBR has chosen to base its numbers on the same assumptions as November. That was before the government decided that the UK would not only leave the EU, but also the single market.
While the strength of the growth and activity forecasts are suggestive of an easier ride, it is clear that there are substantial risks and that these spring from the squeeze to household incomes. As wage growth stays low and inflation picks up, we are already starting to see the effect on consumer spending, but the true test will be whether the availability of credit and the potential for some easing in austerity will smooth the way. Let’s hope so!
GDP Growth (%)