From today, as Finanze's Chief Economist I will be providing my thoughts on the latest economic and property trends through a daily source of insights designed to help you make confident property investment decisions.
The Brief: As Liz Truss prepares to step into Downing Street, she inherits a slew of economic headwinds that include surging inflation, falling consumer confidence, and a sinking sterling, which traded at £0.86 (+0.49%) against the US dollar on Monday. Truss’ proposed tax cuts to stimulate the economy, however, will most likely raise interest rates further and affect millions of mortgage holders amidst concerns of a severe recession looming in the coming months. The country is currently running a deficit of 8 per cent of its GDP.
Why It Matters: Although the Bank of England (BOE) denies speculations from analysts that the interest rate will hit the same level seen during the early 80s, Truss’ strategy has serious implications on the mortgage market since it will likely compel the BOE to hike its benchmark interest rate closer to the 3.25% threshold some time in 2023. This will mean higher payments for those not locked into longer fixed-term contracts, which shield them from interest rate hikes.
Finanze® Foresight: Raising UK’s after-tax income through lowering taxes is no guarantee for a complete rebound of the economy. Housing demand is still firm and cannot be matched by the current tight supply. Truss’ expansionary measure is designed for a short-term GDP and productivity build-up, but its impact on property prices remains to be tested as current values stay firm despite soaring inflation.
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