International Commercial Investment

Pound boosted as service sector growth picks up

by International Commercial Investment on June 5, 2018

Source: BBC News

The pound has risen after a closely watched survey suggested that growth in the UK’s key services sector was faster than expected in May, renewing talk of a possible interest rate rise.

The purchasing managers’ index (PMI) from IHS Markit/CIPS hit a three-month high of 54.0, up from 52.8 in April. A figure above 50 indicates expansion.

The PMI reading prompted a 0.6% rise in sterling against the dollar to $1.3386.

However, the survey also warned that growth could slow in the months ahead.

It found weak growth in new orders among companies, and also said that worries over Brexit remained.
Mixed outlook

The services sector accounts for about 80% of the UK economy. The latest PMI survey “signalled a solid upturn in overall business activity across the service economy”, IHS Markit said.

Some of the improvement last month was due to companies catching up on work after heavy snow in early 2018. However, the survey also found that growth in new orders “continued to rise at a relatively subdued rate”.

Chris Williamson, chief business economist at IHS Markit said: “The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but… raises questions about the outlook.

“Disappointing inflows of new work suggest that growth could wane in coming months as Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence.”

The services PMI comes after similar surveys of the manufacturing and construction sectors. Mr Williamson said that, taken together, the surveys indicated growth of 0.3-0.4% in the second quarter of the year, compared with just 0.1% in the first quarter.

He added that signs of economic growth rebounding could raise the chances of the Bank of England increasing interest rates again, “but with the forward looking indicators suggesting that the economy could relapse, a rate rise is by no means assured”.
Cost pressures

The survey found that job creation growth was the second weakest since March of last year, with anecdotal evidence that it was being hampered by a lack of skilled candidates for jobs.

Meanwhile, costs were being pushed higher by rising oil prices and wages, “although subdued demand means firms are struggling to pass these higher costs onto customers”, Mr Williamson said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said a second-quarter recovery for the UK’s economy was “on track”, giving the Bank of England a brief window to raise interest rates.

“May’s services report increases our conviction that GDP growth will recover in Q2 following weather-related weakness in Q1,” he said.

Howard Archer, chief economic adviser to the EY Item Club, said the latest batch of PMI surveys pointed to “a reasonable but hardly dynamic pick-up in UK economic growth in May”.

“Furthermore, weakened new business growth maintains concerns over the outlook for the economy,” he added.

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International Commercial InvestmentPound boosted as service sector growth picks up

London rents rising almost three times faster than wages, research finds

by International Commercial Investment on June 5, 2018

Source: The Independent
The price of renting a two-bedroom flat in London has risen at almost three times the rate of earnings growth since 2011, new research has revealed.

While the average rent for a two-bed in the capital soared 26 per cent to £1,500 in the six years to 2017, earnings grew just 9 per cent, research by the GMB union found.

In 16 of 33 London boroughs, rent on a two-bedroom flat jumped more than 30 per cent over the same period, while across England rents rose 18.2 per cent to £650 per month.

Greenwich experienced a 50 per cent rise in rents for the same type of property to an average of £1,350 a month – the biggest rise in the capital, while local wages increased just 7.2 per cent.

Warren Kenny, the GMB’s London regional secretary, said high wages were here to stay and warned that younger workers faced living in private rented accommodation for longer.

He called on employers to pay higher wages to staff to enable them to afford to rent.

“If employers don’t respond with higher pay they will face staff shortages as workers, especially younger people, are priced out of the housing market,” Mr Kenny said.

“It makes little sense for these workers to spend a full week at work only to pay most of their earnings in rents.

“There is a massive shortage of homes for rent at reasonable rents for workers in the lower pay grades.

“There is no alternative to higher wages to pay these higher rents, plus a step change in building homes at reasonable rents.”

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International Commercial InvestmentLondon rents rising almost three times faster than wages, research finds

Tax reform could boost London’s housing market

by International Commercial Investment on May 3, 2018

Source: Financial Times

For years, London’s property market has been a tale of rising prices and ever-increasing demand. But enthusiasm for housing in the UK capital appears to have plateaued. Similarly to the rest of the country, the combination of economic uncertainties and tax changes has resulted in a steady drop in purchases.

According to a new survey from the Royal Institution of Chartered Surveyors, demand for properties has fallen for the 12th consecutive month. The drop has been sharpest in London and the south-east of England. The report also said that prices across the whole of the country are flat, while new instructions from sellers have fallen for the seventh month in a row. Respondents expect the slowdown to continue.

Several factors could be responsible. The UK’s volatile political climate may have hit investor confidence. While the very top end of the market has stagnated for several years, the uncertainty of two general elections could have turned off other segments of the market, too. Brexit could also hold back transactions, as buyers wait to see the result of negotiations. A smooth departure from the EU is still far from guaranteed.

Interest rates have also hit the housing market. Last November’s rise in the Bank of England benchmark rate, to 0.5 per cent, was the first in a decade. The BoE’s Monetary Policy Committee has hinted that further increases are on the horizon. Inflation remains 1 per cent above the BoE’s target, so those with variable-rate mortgages are reluctant to contemplate further borrowing. The Rics report suggests the slowing housing market could even affect deliberations over another rate increase in May.

Although rates remain historically low, mortgage affordability is still a challenge. Until recently, increases in London housing prices came while banks could not make more than 15 per cent of their loans to highly stretched buyers.

Some sellers have also refused to accept that house prices are under pressure. So instead of settling for lower offers, owners are opting to take their homes off the market.

Another factor for the market slowdown is taxation changes. In 2014, then chancellor George Osborne revamped stamp duty to scrap the slab system and replace it with a sliding scale, based on the cost of the property. A tax-free bracket was introduced for homes up to £125,000, plus a new tax for the upper brackets.

The critical threshold was £937,000: purchases over that level paid more stamp duty under the new system. The average London property price is £486,000; all the same, a significant part of the capital’s property market was affected. A year later, Mr Osborne introduced an additional 3 per cent stamp duty tax on properties purchased for renting and second homes.

These changes were designed to balance the market. Their impact, however, was to create disincentives to sell London houses. Instead of trading up or down, homeowners appear to have opted to stay put.

Stamp duty, like other transaction taxes, is arbitrary and inefficient. It could be scrapped entirely and replaced with a reformed council tax that adequately reflects the true value of properties. Purchases of expensive properties still need to be taxed in some form: the housing market cannot be titled in favour of the high end.

Stamp duty reform would be hard to achieve. Even if it succeeds, it would not eliminate all the pain of deflating property prices. But unblocking the top end of the market will have benefits for all London property owners.

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International Commercial InvestmentTax reform could boost London’s housing market

UK house prices post biggest monthly increase for six months

by International Commercial Investment on April 10, 2018

Source: The Guardian

House prices strengthened in March to post their biggest monthly gain since August, according to surprise figures from the UK’s biggest mortgage lender.

The average price of a UK home rose 1.5% to hit £227,871, Halifax said. Prices in the three months to March were 2.7% higher than a year earlier, up from the 1.8% annual growth recorded in February.

The figures were an unexpected boost for the housing market after months of lacklustre growth and declines in December and January reported by Halifax, which is part of Lloyds Banking Group.

The role of the London housing market in the growth increase was not clear, because Halifax will not release a regional breakdown of the data until later this week.

Last month a survey showed that house prices in prime parts of the capital had tumbled heavily over the past year, with Wandsworth falling nearly 15%. By contrast, the figures from Your Move estate agents showed that the north-west was the fastest growing market in England and Wales with prices in Blackburn growing 16.4%.

Experts warned against predicting a prolonged revival in price growth based on the Halifax figures. Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said: “The jump in Halifax’s measure of house prices in March just looks like volatility, rather than the start of a strong upward trend. Halifax’s index is prone to large swings.”

Howard Archer, chief economic adviser at EY Item Club, the economic forecasting group, said: “The March spike in house prices reported by the Halifax does not change our view that 2018 will be a difficult year for the housing market. We still expect price gains over the year will be limited to a modest 2%.”

Russell Galley, Halifax’s managing director, said: “Activity levels, like house price growth, have softened compared with a year ago. Mortgage approvals are down compared to 12 months ago, whilst home sales have remained flat in the early months of the year. This lack of direction in the housing market is in stark contrast to the continuing strength of the UK jobs market.”

He said low unemployment, low mortgage rates and the ongoing shortage of properties for sale would underpin price growth in coming months. Halifax is predicting annual price growth to remain close to 3%.

Mortgages in Britain have reached their most affordable level in a decade, according to new research, also from Halifax. Typical mortgage payments accounted for 29% of homeowners’ disposable income in the fourth quarter of 2017, compared with 48% in 2007.

Jeremy Leaf, an estate agent in north London and housing spokesman at the Royal Institution of Chartered Surveyors, echoed Galley’s comments. “The increase in property prices is more to do with a shortage of stock, low mortgage approvals, and subdued activity rather than any great change in the market,” he said.

“What the results do show is that those who are actually looking to buy at this time of year are obliged to pay higher prices for properties in the areas they want to live in order to get what they want, which is what we are also finding on the ground.”

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International Commercial InvestmentUK house prices post biggest monthly increase for six months

UK investment is at a record high. So why has almost no one reported it?

by International Commercial Investment on April 2, 2018

Source: The Spectator

Why is it that whenever some organisation comes up with some half-baked prediction of doom for the UK economy post-Brexit it is splashed all over the news, yet real data on the economy gets ignored? Yesterday, the ONS quietly released the latest figures for Gross Fixed Capital Formation (GFCF) which covers investment across the whole economy, public and private sectors, manufacturing, construction, services and extractive industries.

They showed that contrary to the received wisdom that investors have fled the UK following the Brexit vote, investment grew by 1.1 per cent in the fourth quarter of 2017, to a total of £84.1 billion. Over the course of 2017 it grew by 4 per cent compared with 2016. This was higher than for any other G7 country – with Italy following on 3.7 per cent, France 3.5 per cent, the US 3.2 per cent and the US on 3.1 per cent?

Is this not news? The BBC doesn’t seem to think so. It didn’t make the business news on the Today programme, nor does the story appear on the business section of the BBC website. The Guardian didn’t bother with it, though it did big up statistics showing the UK had the slowest rate of growth in consumer spending in the G7. The Times carried a story about another piece of good economic news – the decline in the UK’s current account deficit – but did not mention the investment figures.

The only paper that did give the investment figures space was the FT – although in a somewhat loaded way, suggesting that it was only really down to a construction boom and that lots of investment decisions in new office space must have been made before the referendum. Somehow, I suspect the FT wouldn’t have taken this line had investment fallen – that would very much have been connected with the Brexit vote. For the record, business investment – which excludes the public sector and the construction of dwellings – accounted for £46.2 billion of the £84.1 billion invested in the fourth quarter of 2017. Over the course of 2017, business investment in the UK grew by 2.6 per cent. The ONS does not compare this particular figure internationally, however, because of differences in how it is compiled.

Brexit is not guaranteed to bring a bonus to the UK economy – far from it, it could still prove a disaster if the wrong decisions are made by a future UK government, shutting us off from the world and bailing out failing industries rather opening up and economy and encouraging growing industries. But it would be extremely helpful to all of us if we could be fed rather less propagandist speculation about the future direction of the economy, made by organisations which have already been embarrassed by the grim forecasts they made ahead of the referendum, and we got to hear rather more genuine economic news.

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International Commercial InvestmentUK investment is at a record high. So why has almost no one reported it?

Services bounce-back boosts UK economy

by International Commercial Investment on March 7, 2018

Source: Sky News

Britain’s dominant services sector has bounced back to keep UK growth on track as it recorded its best performance in four months.

Figures for February from the sector – which covers businesses from law firms and accountants to bars and restaurants – suggested that the wider economy had maintained the 0.4% pace of expansion seen in the final quarter of 2017.

However experts noted that for the first quarter as a whole, GDP growth was likely to take a knock as a result of the cold snap causing some activity to freeze up – if only temporarily.

The services Purchasing Managers’ Index (PMI) recorded a better than expected figure of 54.5 in February, up from 53 the month before. A figure of 50 separates growth from contraction.

There was strong job creation and an upturn in new orders – which, for a sector representing four-fifths of UK output, might be seen as strengthening the hand of Bank of England rate-setters considering a hike in May.

But there were also signs that pressures driving up prices had cooled a little, dampening the argument that an interest rate rise might be needed to curb inflation.

Taken together with the PMI figures from manufacturing and construction the latest data suggested that “a resiliently steady pace of expansion has been maintained” according to Chris Williamson, chief business economist at IHS Markit, which compiles the survey.

He said that it left the possibility of a May rate hike “very much in play”.

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the case for leaving rates on hold in May remained strong.

He said weighted figures actually painted a picture of growth slowing to 0.3% in the first quarter while inflation remained subdued.

HSBC economist Elizabeth Martins said the survey data pre-dated the recent weather disruption in late February and early March “so there may be an impact not yet showing through”.

But she added that this would be “circumstantial rather than indicative of an underlying slowdown”.

The PMI data also showed the services sector – in recent years the engine of UK growth – reasserting itself as the strongest expanding part of the economy after a Brexit slowdown.

Since the referendum in 2016, the sector has been hit by the tough environment for consumers, as the collapse in the pound has driven up prices.

At the same time, the pound’s weakness has helped exports become more attractive for overseas buyers, boosting manufacturing.

But more recently, the pound has recovered close to levels seen before the referendum, partly reversing the effect in last month’s data.

However, a separate survey on Monday from manufacturing organisation EEF showed that the sector had cooled only slightly from last year’s heights, helped by strong global demand.

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International Commercial InvestmentServices bounce-back boosts UK economy

London property is worth more than Bristol, Birmingham, Glasgow, Manchester, and Edinburgh combined

by International Commercial Investment on February 24, 2018

Source: Business Insider

London’s property market is worth a total £1.5 trillion according to new figures from Zoopla — more than twice the value of the nine other most valuable property markets in the UK combined.

Zoopla’s figures suggest that the value of London property is 13 times higher than that of its nearest rival, Bristol, which has a property market worth £115.2 billion. London represents just over 18% of the entire UK property market by value.

However, London property prices grew the slowest out of any of the top 10 hotspots last year, according to Zoopla’s figures. House prices in the capital rose by just 1.54% over the last 12 months.

Zoopla’s rival Rightmove said last week that London house prices have now moved out of their “boom” phase after nearly two decades of rapid price rises.

Lawrence Hall, a spokesperson for Zoopla, said in a statement: “It comes as no surprise that London is significantly more valuable as a residential property market than any other British city.

“However, the data does show that, in comparison to cities further north and across the Scottish border, the rate of growth in London has slowed. The capital may be worth almost 10 times more than Sheffield, but Britain’s Steel City wins in the growth rate stakes.”

House prices in Sheffield grew by 5.63% last year according to Zoopla. Here’s Zoopla’s full table of the top 10 cities by property market worth:

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International Commercial InvestmentLondon property is worth more than Bristol, Birmingham, Glasgow, Manchester, and Edinburgh combined

Deficit restraint puts UK economy on better course

by International Commercial Investment on February 23, 2018

Source: Financial Times

Strong data on UK deficit reduction, robust productivity growth and continued high employment prompted Britain’s finance ministers to vie for the limelight on Wednesday.

First Liz Truss, chief secretary to the Treasury, cast aside the normal caution at the finance ministry to declare the latest public borrowing figures to be “strong”. Then chancellor Philip Hammond trumped his junior to comment on all the economic data that had been released.

“Best run of productivity since before the financial crisis . . . yearly borrowing reduced by over £100bn since 2010; good economic news as we build an economy fit for the future,” he tweeted.

The good headlines do not stop there. In cash terms, the UK deficit has now shrunk to less than £40bn over the most recent 12 months of data.

This is below the cash rate of borrowing before the financial crisis, the Institute for Fiscal Studies, a think-tank, pointed out.

And at less than £40bn, the deficit is almost exactly 2 per cent of national income: this is the level that the government has pledged to bring underlying borrowing down to by 2020-21. Mr Hammond has a more exacting goal of balancing the government’s books by the middle of the next decade.

In the short term, the much better than expected economic data leaves the Office for Budget Responsibility, the fiscal watchdog, in a race to decide how much to upgrade the outlook for Britain’s economy at Mr Hammond’s spring statement to MPs due on March 13.

The OBR indicated on Wednesday the upgrade will be “significant”, just four months after its much anticipated cut to productivity forecasts led Treasury officials to talk about a “bloodbath” in the public finances.

The first task for the OBR will be to assess whether the improvement in the latest official figures about the public finances will prove permanent — or if they simply represent a temporary blip of good news for the Treasury.

January tax receipts are the most important of the year. This is because they coincide with the deadline for income tax self-assessment payments, but all the talk of strong receipts appeared odd when they were £1.4bn lower last month than a year earlier.

The answer to the puzzle is that the January 2017 receipts were thought to be artificially high due to a move by the previous chancellor George Osborne to increase income tax on dividend payments.

The OBR had expected owners of companies to respond to Mr Osborne’s reform by shifting more dividend payouts into the 2015-16 financial year, and pay tax in early 2017. This would enable them to avoid his tax increase on dividends that took effect in 2016-17.

But with the self-assessment receipts only £500m lower in January 2018 than a year earlier, it is likely company owners did not accelerate as many dividend payouts as feared.

This in turn implies that genuine economic activity was better than previously thought in 2015-16, and there is little sign that it tailed off, so the OBR is therefore likely to view much of the tax receipts surprise as a permanent improvement in the borrowing position.

Economists estimated the government would borrow just over £40bn in 2017-18, down from £45.8bn in 2016-17, and significantly less than the £49.9bn predicted by the OBR at the time of Mr Hammond’s November Budget.

In the past, when faced with a similar upside surprise, the OBR has tended to assume that some of the strength continues, but that some does not.

This implies that when the OBR produces its new forecasts next month, borrowing could be reduced by about £7.5bn in 2017-18 and in subsequent years.

The OBR faces a more difficult decision about whether to raise the UK’s long-term economic growth outlook to reflect the much improved productivity performance in the third and fourth quarters of 2017.

Productivity is a key driver of economic growth, but the OBR is likely to be much more cautious in assuming the recent good data persists into the future, reflecting how quarterly figures tend to be volatile.

Ben Broadbent, deputy governor of the Bank of England, told MPs on Wednesday to be cautious about the recent sharp rise in productivity growth. Reminding the Commons Treasury select committee that it was a quarterly number, which was “noisy”, he said “we should be wary about quarterly measures [of productivity]”.

Howard Archer, chief economic adviser to the EY Item Club, said the productivity data in the fourth quarter looked oddly strong because it was “heavily reliant on an unusual drop in average hours worked by full-time workers”.

With productivity per worker only 0.4 per cent higher in the fourth quarter than a year earlier, the evidence for a sustained pick-up in underlying growth is likely to be too weak to influence the OBR’s main economic projections.

Meanwhile, although the employment rate remains high, at 75.2 per cent in the fourth quarter, other labour market data suggested a less glowing outlook. Notably, the unemployment rate nudged higher to 4.4 per cent, implying labour related tax receipts are unlikely to rise quickly.

But an improvement of £7.5bn a year in the forecasts for the public finances — or roughly half the “bloodbath” downgrade from the November Budget — will be very welcome news for Mr Hammond.

Until the figures are revised again, the latest data will allow the chancellor to have thoughts of giveaways in the Budget later this year.

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International Commercial InvestmentDeficit restraint puts UK economy on better course