Economy Update May 2018
18th May 2018 | 12:00am
18th May 2018 | 12:00am
As part of our continuing work to keep our readers and clients informed about the state of the economy we’re bringing you the latest economy update from behavioural economist Roger Martin-Fagg.
The full update can be found on the Property Academy website and goes into detail about the state of the global economy and the influence geopolitics is having on big business across the world. He also writes an honest report comparing his recent predictions against actual performance.
In his report Martin-Fagg writes about the future of interest rates. Generally these are forecast two years in advance. Accepting that the UK is running at full capacity – wage inflation is somewhat subdued. The most recent money and credit data suggests that inflation is much closer to 3% than 2% and so interest rates will need to increase to account for the demand in credit.
In March of this year there was a slowing in the growth of lending from banks – this is thought to be the result of a number of factors, even the weather!
Martin-Fagg has forecast that the UK is closing in on its economic cycle peak. A typical cycle might last 7-9 years but with recovery in 2013 weaker than other years we may not reach the peak until 2020. Additionally the weather has had an effect on the first quarter of 2018 halving the quarterly growth rate to around 0.2%.
“The labour market tightens and wages are growing faster than productivity so that either profit margins are eroded or inflation increases. Currently, UK wages are growing at 2.8% inflation is 2.5% productivity growth is 0.8% and unemployment is 4.4%. This data supports the tight labour market observation.” The Property Academy
Property and the Economic Cycle
According to Martin-Fagg property is more affordable today than it has been in the last decade. Even though the house price market has been improving across the country research has shown that UK households spent 29% of their after tax earnings on mortgage costs last year compared to 2007 when it was 48%.
This has come about because borrowing is relatively cheap compared to previous years – we can expect the Bank of England to raise the rates this year. Remember you can read the full update on The Property Academywebsite.
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photo credit: Joseph Kim