Knight Frank Daily Update Wednesday 15th July
The UK economy, a record month for property and 110,000 homes on government car parks
3 minutes to read
Good morning,
Need to know
The UK economy returned to growth in May, with GDP climbing 1.8%. That pared the three month contraction between March and May to a still historic -19.1%.
Manufacturers and housebuilders led gains, while retailers saw record online sales. Though the news confirms a welcome return to growth, the 1.8% monthly rise fell short of analysts expectations of gains in the region of 5%.
The government's spending watchdog the Office for Budget Responsibility updated its long-term outlook for the public finances, with all three scenarios projecting the largest decline in annual GDP for 300 years this year with differing views on the pace of the recovery.
In the upside scenario, activity rebounds relatively quickly, recovering its pre-virus peak by the first quarter of 2021, and there is no enduring economic scarring.
In the central scenario, output recovers more slowly, regaining its pre-virus peak by the end of 2022. Cumulative business investment is 6 per cent lower than in the OBR's March forecast over five years.
Finally, in the downside scenario, output recovers even more slowly, returning to its pre-virus peak only in the third quarter of 2024. See the chart on P6 of the report for context.
None of the scenarios assume persistently lower growth in potential GDP, as was the case after the financial crisis and which would result in the loss of output and fiscal damage increasing over time. And they all assume that very low interest rates persist, cushioning the fiscal blow.
Shares in Asia climbed along with US and European equity futures overnight amid optimism that progress is being made in developing a defence against the virus.
Morderna's vaccine produced antibodies to the virus in all patients tested in an initial safety trial, US federal researchers said.
The property market
With two month’s having elapsed since the property market reopened on May 13th we are able to assess its performance.
The number of offers accepted by sellers hit a record level in June, eclipsing the existing strongest month by 46%, according to Tom Bill's analysis.
Questions are reasonably being raised as to whether these activity levels can be sustained, particularly as we reach the wind down of government support schemes during the autumn, and for concrete answers we'll have to wait and see.
We do know that current levels of activity are particularly strong in UK regional markets as buyers seek more outdoor space following the lockdown. However, strong buyer registration figures in London suggest that deal activity in the capital will get stronger.
The Times this morning covers Knight Frank analysis revealing a sale of 15% of parking space owned by the government could raise £6 billion and free land for 110,000 new homes.
As noted by Ian McGuinness, Knight Frank's Head of Geospatial and author of the study, the figures shine a light on the sheer scale of the opportunity to deliver much needed housing on government-owned land and come as many local authorities face increasing pressure to meet ambitious housing targets.
The Times also carries a report stating the chancellor has ordered a review of capital gains tax probing “how gains are taxed compared with other types of income”.
The piece suggests Mr Sunak may be considering raising its historically low rates to the same levels as income tax, which could bring in £90 billion over five years.
Finally, Wales as well as Scotland has now followed England in introducing a purchase tax holiday. The cut will not apply to purchases on additional properties including buy to let and second homes.
Any questions, please contact me, or the team.