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The Economic Outlook Post Theresagate

After the recent general election we have updated our general notes on the current investment and economic outlook:

The following is a summary of the most popular themes from the plethora of industry commentaries we have seen post the election.

The Political Landscape
If this election has taught us anything, it is that promising the earth and offering new hope will always win over negativity and spreading fear.

The election has humiliated the government and left the UK in a much weaker negotiating position. Certainly Theresa May’s days look numbered and following on from that perhaps another general election.

Northern Ireland now effectively rules the UK:

Total Seats In Parliament 650
Take Away Sinn Fein -7
Take Away The Speaker -1
Net Seats 642
So To Get A Majority You Need 322
Conservative 318
DUP 10
Total 328

The DUP have many areas they agree with the Conservatives however on several BREXIT issues they do not (hard BREXIT for instance) so expect to see a softer BREXIT than originally proposed.

The election has handed a massive gift to the EU who now will stall for as long as they can to get the best deal for the remaining EU members.

Government Economic Action
This seems likely to remain as is. The election has strengthened Philip Hammond’s position so it is unlikely he will suffer the fate waiting him had things gone differently. This being the case the short term economic outlook remains the same.

Interestingly we have anecdotal evidence from many London clients that the new SDLT rates are creating a stagnant market in the £1.5 million plus bracket (a property at £2 million will set you back £240,000 in tax) meaning that prices throughout London are falling. Again in the lower property ranges elsewhere the 3% SDLT surcharge isn’t making any difference to the buy to let market which remains buoyant. One wonders whether the double whammy of basic rate tax relief only on mortgage interest will start to see a lowering of demand as non-company leveraged owners sell. In a country with a chronic shortage of housing it does seem perverse to try and reduce the number of buy to let property. On the other hand there is the Conservative pledge to fulfil the 2015 pledge to build a million new homes by 2020, and an additional 500,000 units by 2022.

This leaves PM May committing to c.1.25 million dwellings over the next five years. If delivered, this policy could slow house price rises and reduce private rents, a remarkable move after decades of knowingly under-building. Low interest rates and the long legacy of a supply deficit should prevent any house price collapse. But it is difficult to see house prices continuing to rise as much as homeowners have come to expect, given the very stretched nature of valuations relative to incomes or rents.

One of the few notable (though far from game-changing) policy shifts in the manifesto was the subtle alteration of the current commitment to eliminating the deficit ‘as soon as possible in the next parliament’ to ‘by the middle of the next decade’. This points to a more protracted but less acute period of austerity which should encourage a rise in GDP and living standards.

Have The Reports Of U.K. Economic Demise Been Greatly Exaggerated?
Over the last two years, improving wage growth and the falling cost of fuel and energy have made the consumer more confident. Confidence alone raises consumption as households draw down on their savings and take out consumer loans. Consumer loans (not counting mortgage debt) rose by £25 billion (or 15%), and the proportion of disposable income saved has fallen to the lowest level since records began in 1980.

The long term average annual GDP growth is still around 2%.

On the other hand there are signs the boost to consumption has run its course. There is a strong negative correlation between confidence and household inflation expectations. As inflation increases throughout the year, household expectations will rise further, dragging down confidence, which is already markedly below its peak.


After the disastrous UK election it seems unlikely that there will be little if any progress on the negotiations in the first half of the Article 50 two year timeframe. It is of maximum benefit to the EU to squeeze the UK at the end of the period to get the best deal for the EU.

Poor trading terms and massive debt seem to be the most likely result of the May gamble.

Conclusions Don’t panic and carry on! In the longer term asset price increases rely on a growing economy and certainty; right now there seems little evidence of either.

The information and statistics provided in this bulletin have been taken from a number of sources and are available upon request. The figures are approximations and conjecture and should not be relied upon. You should not take action on any comments made herein without a personal consultation and discussion with your financial adviser. Figures given today will change tomorrow. ADLS 09/06/2017. E.&.O.E


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