I was asked to comment on the prospects for 2014. Given that the cricket can only get better, the soccer World Cup is a pipe dream and the 6 Nations Rugby is anyone’s guess, I thought I would stick to economics.
Few commentators are predicting anything other than a relatively buoyant UK economy in 2014 after 5 or 6 years in and out of recession. Accordingly there is much speculation as to how much longer interest rates can stay at their all-time low. Gross Domestic Product (GDP) is back in the black and forecast to grow by more than 2% in 2014 and unemployment is down to almost 7% - the level once thought to be a trigger for interest rate rises. However inflation has been falling and in December 2013 was back at the target level of 2% set by the Government for the Bank of England. On 24 January 2014, “new” Governor of the BofE, Mark Carney, attending the World Economic Forum at Davos, yet again chose to emphasise that there is “no immediate need to increase interest rates”. The markets are sceptical, since May 2013 forward interest rates for 2016 have risen by nearly 1%. However residential mortgage rates have actually fallen as supply has increased and lenders have been competing for business.
So what does that mean for us and our clients? I am the first to admit that you can prove anything with statistics – you just have to be selective. The Government points to the “fact” that “most British workers have seen their take-home pay rise in real terms in the past year” but the Opposition simply replies that net disposable income is down once benefits are taken into account. In the end sentiment plays a huge part in how we behave. Do we feel confident that we will have a job in 6 months or a years’ time or that our business will remain profitable? Given what I have said about statistics you may be cynical about the next quote but my institute, the ICAEW, commissions a regular study of business confidence and by last Autumn it was already at highs not seen for many years. What is particularly interesting to us in the South West is the fact that our employment figures were the strongest during the recession and now our business confidence is second only to the North East. In 2013 Porter Dodson handled 15% more residential property purchases and sales than in 2012 – some of that was down to our own growth but the underlying trend was definitely up.
Alder King’s recent annual report on commercial property said that speculative development is on the up and that the supply of office space in the region fell by 16% to 4.8m sq ft and is set to fall further whilst demand is increasing, vacant industrial space fell by 13% in 2 years and “rental increases in 2014 are the most optimistic since the downturn began in 2008”. Even the retail sector “saw a cautious level of confidence return in the latter half of 2013”. Courtesy of Sarah King, Alder King, email@example.com.
Talking to Mark Lewis, Head of Agency at Symonds & Sampson, he confirmed that residential developers are dusting off their land banks at last. This reflects our own experiences with our developer clients. On the back of the Government’s “Help to Buy” scheme, developers are using starter homes to kick start mixed developments. Mark believes there is latent demand with buyers sitting in rental accommodation looking for the right time to come out from hiding. If mortgages, including medium term fixed rate deals, are at an all-time low then it may well be that now is just the right time for them to break cover and come back into the market.
You may remember Norman Lamont’s 1991 “Green Shoots” speech. Seen as “insensitive” at the time, no-one in Government has been brave enough to use this phrase recently. However it is clear that there are at least grounds for optimism about the next 12 months.