The average property price in Wales is up 8.4%.
- Tuesday, April 27, 2021
The UK’s impressive procurement and vaccine roll out has resulted in a dramatic fall in Covid cases, hospitalisations and deaths. These improvements in the nation’s health have helped ease lockdown restriction far earlier than expected.
It is the UK success in the vaccination programme along with the additional £250bn of government spending on Covid relief and stimulus packages that have helped the UK stock market improve over recent months. This is particularly true of the domestic FTSE 250 index. The FTSE 250 hit a high of 22,522 points in Mid-April while the FTSE 100 broke through the 7,000 mark. Both up 42.5% and 19.7% respectively over the past year to late April. UK equity valuations are also attractive compared to overseas companies across a number of metrics meaning a catch up in value is expected.
The FTSE 100 has been somewhat overlooked since the June 2016 Brexit Referendum as compared to other major developed markets. The nature of the FTSE 100 is predominantly value stock rather than growth stock and has fallen behind on that basis alone.
Now that a no deal Brexit was avoided at Christmas and that the UK/EU trade volumes are recovering from early disruption, a strong growth environment and first-class vaccination programme is likely to result in a further pick-up in UK stock values. As the world returns to something of a normal, the traditional companies will recover. Banking, mining and commodities, pharmaceuticals, and energy companies will become more popular, which is the primary make-up of the FTSE 100.
As the UK has a larger consumer service sector than most other countries, it was more sensitive to lockdown. As a result, UK GDP fell 9.8% in 2020 as compared to 6.6% in the Eurozone and 3.5% in the USA. This deeper fall gives a far greater opportunity for bounce back. The IMF is now predicting a 6% recovery in 2021. Investec have predicted growth for the UK as 7.3% and the Eurozone at 4.4% this year. This revision of fortunes is based upon the speed of the vaccine achieving herd immunity, the household savings rate, business confidence and the significant government support packages. The UK is on track for a 5% growth in GDP in Q2. Some analysts are suggesting that the UK could be the growth economy of 2022.
UK inflation moved up from 0.4% in February to 0.7% in March as a result of higher petrol prices and transport costs. The Bank of England has forecasted that inflation could reach 1.9% by the end of 2021. Other economists have predicted that UK inflation could hit 2% far sooner as price growth is on an upward trajectory.
We do not expect the BoE to risk a financial crisis by increasing interest rates to dampen inflation growth but the competent management of interest rates and inflation will challenge all central banks over the months and years ahead.
The initial disruption to exporters and importers at UK ports was a concern in January as the ONS reported a massive 42% slump in UK exports to the EU. However, it now seems that exports have returned to close on 2020 levels. Given that large parts of Europe are still in lockdown means that these figures can yet improve. The UK will probably return to pre-Covid GDP levels before the Eurozone.
UK exporters are coming to terms to the additional Brexit red tape. There has been a 20% fall in exports going through France and in particularly Calais and a 38% increase in exports entering Europe via Antwerp. The main French ports have been less helpful to UK exporters who are now finding more attractive alternatives.
The UK residential housing market is booming with March transactions at the highest monthly level since records began in 2005. The Covid crisis does not seem to have dampened the property market, in fact it may have enhanced it with the stamp duty holiday and people reconsidering where they live as home working patterns are becoming more established. The average property price in Wales is now £180,000, up 8.4% on 2020.
The ONS have confirmed that at the end of Q1 UK government borrowing had hit £303.1bn mainly used to support workers incomes and the economy. This figure equates to 14.8% of UK GDP and is the highest level of national debt since 1945. Borrowing in 2020/21 is £250bn larger than 2019/20 and was as much as £28bn in March alone. However, due to the recent boost in business activity and retail sales, this figure is less than the £400bn economists had feared back in 2020. This will mean that the Government will not need to rise so much debt. The Debt Management Office plans to issue £252.6bn of gilts in 2021/22, this is £43.3bn less than the published in the Budget.
The overall national debt is now £2.131tn or 97.7% of UK GDP. The debt repayment cost to the taxpayer on this borrowing was £38.8bn in the 2020/21 tax year. Interestingly this is down from £48.1bn in 2019/20.
The buoyant housing market has earned the Treasury £1.3bn in stamp duty taxes in March despite the stamp duty holiday on houses valued under £500,000. Business confidence is rising as evidenced by the Markit PMI Survey jumping to 60 points in April as compared to 56.6 points in March. Capital Economics expect that the UK recovery to result in UK GDP to be 3.7% higher than its pre pandemic level at the end of 2022 and Oxford Economics expect the economy to grow by 7.2% this year.
Chris DaviesChartered Financial Adviser
Chris is a Chartered Independent Financial Adviser and leads the investment team.