Market Insight - June 2016
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Expect Delays

It's not all about brexit
Wider global uncertainty looms over economic growth

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The economic outlook has become more difficult to read recently, given the growing uncertainties the UK faces. It’s not all about what would happen should the UK vote to leave the European Union; more important is the performance of the wider global economy, affected by oil, and the slowdown in China and the other developing economies. As an open economy, weaker global activity makes a difference and this ‘cocktail of risks’, as the Chancellor puts it, is key to the UK’s and London’s economic future. 

The latest data for the UK shows a slower pace of economic growth. The economy grew by an estimated 0.4 per cent in the first quarter of 2016, compared with 0.6 per cent in the final quarter of 2015. Despite that the UK has still achieved more than three consecutive years of unbroken positive quarterly growth. 

While the IMF downgraded its forecast for UK growth in April, the revision was small and the UK is still expected to be among the fastest growing advanced economies in the world over the next few years, outstripped only by the US. So, while there is some easing in the pace of growth, the economic outlook is not so bad, just not as smooth and as easy a recovery as we would like. 

In terms of the major economic drivers, employment and real earnings growth are still rising, while interest rates, and hence borrowing rates, are still at all-time lows, with credit conditions loosening somewhat. That is good news for the UK economy as a whole, but also for London and the South of England where economic conditions continue to be more buoyant. Higher incomes and stronger employment opportunities in the Capital, especially in the professional occupations, fuel demand and add to economic prosperity. 

All that is good news, but uncertainty is poison to the markets. Just as business investment has reportedly been delayed awaiting the outcome of the referendum vote on June 23, so will decisions about investment in UK housing. 

For those investing from overseas, currency movements are imperative. Sterling has recovered from the initial dive it took following the announcement of the referendum, which suggests that the markets are happier about the expected outcome for the economy, whichever way the vote goes. And with European economic growth now picking up, there is some light from an unexpected source at the end of the economic tunnel. 

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