09.08.10 by Rob Gill
Coreco 2010 Forecast- Half Term Review
Now that all the economic data for the first half of 2010 has been compiled and published, a quick review of Coreco’s first formal attempt at an economic forecast seems in order. In January we issued our prediction on House Prices, Interest Rates and the Stock Market, here’s a reminder of our original figures vs. the current actual numbers and a brief commentary.
House Prices: up 5% in London and the South East
Using the Nationwide House Price Index to compare prices in Q4 2009 to Q2 2010 shows a rise of 5.1% in London and 5.5% in the South East. As predicted, the strong trend of rising prices in 2009 has continued into 2010 to achieve our prediction within the first 6 months of the year.
A number of factors are now holding back this momentum. Uncertainty over the general election followed by the World Cup and the summer holiday months have all dampened buyer enquiry levels, while the abolition of HIPs along with higher overall prices have attracted more sellers and thus increased supply. A fairly flat market to the end of the year appears likely, with no doubt some month on month fluctuations, although as the economic recovery now appears established and inflation remains high, further price rises cannot be ruled out.
Interest Rates: Base Rate at 2% by end of 2010
While UK base rate remains at 0.5%, inflation has remained stubbornly above target which has caused one member of the MPC (Andrew Sentence) to vote for an increase in base rate since June. Overall however the MPC remain concerned that the economic recovery could be set back by the coalition Governments fiscal tightening and events elsewhere in the Word such as the European sovereign debt crises and a potentially faltering US economy.
Currently the “Doves” are winning the argument both within the MPC and amongst the majority of economic commentators. An early shot across the bows in the form of a short, sharp rate rise of perhaps 0.5% by the end of the year cannot be ruled out however if the MPC feels inflation expectations are getting out of control. While 2% by the end of the year now looks less likely, we remain of the opinion that the inevitable base rate rises will come sooner, and be more dramatic, than most commentators expect.
Stock Market: FTSE 100 to reach 5,950 in 2010
The FTSE raced to its 2010 high to date of 5,825 on April 15th, before it and other global stock markets collapsed dramatically in the aftermath of the European sovereign debt crises. Having plunged as low as 4,750 in early July, the FTSE has now recovered towards 5,400 as fears surrounding Europe have receded. With the global economy continuing to improve slowly but surely, renewed investor confidence should see the UKs leading index rise towards 6,000 by the end of 2010.
Our predictions were made on the basis that at the recovery stage of a cycle most analysts, commentators and investors tend to be overly cautious and that the year would unfold in better shape than many expected. This has so far been borne out in terms of House Prices and Stock Markets, as well as the broader measure of UK economic performance GDP, which has outperformed even the most optimistic forecasts.
UK base rate is likely to develop as one of the most hotly debated topics of the recovery. The political aspects affecting the decisions of the MPC such as the effect of fiscal policy and desirability of allowing some inflation to erode away our national debt seem to directly contradict the stated goal of the MPC which is to control inflation. As such the timing of any move upward will become an increasingly contentious issue.
Monty’s Mortgage Blog
11.01.12
2012: What does the future hold for the mortgage market?
In my mind 2012 was always meant to be the year when everything began to improve, after all we have the Olympics and the feel good factor from that together with a good Euro Championships would surely propel us on to bigger and better things?
Coreco
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