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Since the decision to leave the European Union was first reached in 2016, we have all been labouring under the assumption that some kind of definite resolution to this palaver, whether for better or worse, would be reached by the time we arrived at March 29th. But the 29th of March has come and gone, and we’re no more certain of our future than we were on that fateful evening in June. In fact, if anything, we’re less certain, because not only are we unable to envisage what a post-Brexit Britain will look like; we’re now not even sure if there will be a post-Brexit Britain, or if the decision to leave the EU will be overturned and we’ll be returned to our pre-Brexit state of Edenic simplicity.
But amidst this roiling sea of uncertainty – an uncertainty which is only being intensified by the jittery state of the world economy – something surprising is happening: the British economy is sailing through the storm with barely a stumble. The truth of this fact has been vaguely apparent for a little while now, with various economic indicators hinting at the hardiness of the economy; but good news is often bad news insofar as the press are concerned, which is why these data points have been ignored and de-emphasized into obscurity, while those painting a picture of pessimism have been thrust into public awareness with abandon.
Now, however, the body of evidence attesting to the good health of the economy has grown so large and so convincing as to demand serious attention. Most recently, for example, in response to the latest batch of GDP figures, the Bank of England was compelled to revise its growth forecast for the coming years in order to better factor in the GDP figures for the first quarter of 2019, which is now at 0.5% – 0.3% higher than expected. It is now forecasting growth of 1.5% in 2019, 1.6% in 2020, and 2% in 2021 – 0.3%, 0.1%, and 0.1% higher, respectively, than their previous forecasts. Additionally, the Bank of England now expects the rate of unemployment to drop to 3.5% by 2022, which will be the lowest level this statistic has ever fallen to. This is despite the flow of jobs that are allegedly pouring out of the country.
In addition to these revised growth forecasts, the Bank of England’s chairman Mark Carney warned that while the Monetary Policy Committee had agreed to hold the base rate constant at 0.75% this month, it may soon be forced to make multiple interest rate hikes so as to stop the economy from overheating. This was not a danger to which most people believed the economy susceptible, but as real wages continue to rise and unemployment continues to fall, the risk of inflation is becoming a legitimate worry to policymakers. Similarly, the European Commission, while downgrading many of its growth predictions for the EU bloc, found it necessary to increase its forecast for the UK, which it recognised to be performing at a higher level than was previously expected.
Now, of course, all forecasts at this point are provisional; nobody really has any firm sense as to what the resolution of this process will look like. But the fact that the growth projections are as rosy as they are – and this despite much of the confidence being drained from the market following the inability of our politicians to come to any kind of agreement – is surely a cause for optimism. There are, however, pundits who point to stockpiling as the sole cause of this growth, claiming that the current over-performance of the economy is primarily a result of manufacturers building up supplies in an attempt to insulate themselves from any Brexit-induced disruption. While this may well be partially true, it is also inarguably the case that other sectors – for example, the construction sector – also grew at a significantly faster rate than expected, and that even the service sector grew at a faster rate than most experts could have foreseen.
But though the economy is outperforming expectations and looks set to continue doing so, there is still an ominous cloud of uncertainty looming over the country. To an economy made of less sturdy stuff, this cloud may have been sufficient to cause a recession; to the British economy, however, it has had no such effect. In fact, as has been demonstrated, this cloud appears to have had only a small number of adverse effects, apparently confined to certain regions of the economy.
One such region is the property market, which has traditionally been more sensitive to fluctuations in confidence than other regions because buyers and sellers of property have the freedom to retreat from the market in times of uncertainty, biding their time until market conditions become more favourable. While such a retreat has surely taken place over the past year or so, the value of property has remained relatively stable, as evidenced by the various House Price Indices released this month. Nationwide, for example, has annual house price growth at 0.9%; Hometrack’s 20 city index is at 2.5%; Rightmove has average asking price growth at -0.1%; the Halifax index has annual house price growth at a whopping but dubious 5%; and the Office of National Statistics has just released a report stating that up to March of this year, house prices continued to grow at a rate of 1.4% annually. Taken individually, there are reasons to question each of these indices; taken collectively, however, they sketch a range of possibilities that all seem reasonably hopeful: at worst, the average price of property in the UK is stable; at best, average prices are rising rapidly. Furthermore, recent research released by UK Finance found that the number of mortgage approvals in April 2019 was higher than during any month since February 2017 – perhaps the first belated sign of spring fever hitting the property market.
No discussion of house-prices, however, would be complete without taking a look at regional house price growth difference. On this score, there’s only one story to be told: house prices in London have been falling; house prices almost everywhere else are rising. It seems, in fact, that the price growth of London property is almost inversely related to the price growth of property everywhere else: the lower London house prices go, the higher do those of the rest of the nation. Which is partially why overall house prices have remained so stable.
The reasons for these differences in house price growth seem to come down to differences in sensitivity to Brexit: in London, Brexit remains at the forefront of people’s minds and their property-purchasing decisions have subsequently been highly influenced by political preoccupations. Elsewhere, however, Brexit does not seem to be factoring into people’s home-buying tendencies much at all; in fact, people are making their house-buying decisions as if Brexit and the disruption it entails did not exist. This market therefore remains blissfully unaffected by political eddies, while the London market has slammed to a halt.
But every cloud has a silver lining, and this particular situation is no exception to this rule. While property prices in the capital have certainly fallen, rental yields in certain London Boroughs are on the rise. This fact was demonstrated empirically in a recent piece of research conducted by Private Finance and published by the telegraph here. With the buy-to-let industry struggling as it is, such rises in rental yield may provide prospective landlords with an opportunity to jump into the market while prices are low and reap the rewards that such rising yields are sure to offer.
Statistics deserving of optimism are everywhere: GDP is rising faster than anybody expected; growth forecasts are being upgraded; employment rates are through the roof and expected to keep rising; real wage rates are up and show no signs of dropping. There are, it must be admitted, certain statistics that seem superficially troubling, but even these data points permit of a positive interpretation. London property prices, for example, are down, but this decline provides an opportunity for new landlords to jump into the market and benefit from rising rental yields. Moreover, as these isolated regions of stagnation suffer under Brexit induced uncertainty, many other regions – most other regions – of the economy are forging onwards, impervious to the speculation, intrigue, and strife that rage around them. Nobody can foretell the future of the UK, but one thing can be said with reasonable confidence: despite everything that’s happened, contrary to all predictions, in defiance of all doubts, our economy looks to be holding up pretty well.
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