RICS Budget 2016 Analysis

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The Chancellor was dealt an intricate hand in revising the size of the economy and the financial turbulence at the start of the year with the decision of the statistical authority (ONS). Despite this, he arranged a robust performance in delivering the 2016 Budget, highlighting the economy’s outperformance against the UK’s major rivals.

Inevitably, there were issues surrounding the fiscal numbers, with the budget only returning to surplus in 2019-20. Honestly, meeting the target has little natural consequence for the real economy. This issue is more for the credibility of the Chancellor, who has primarily emphasised this.

Enhancing economic potential

The latest raft of structural measures designed to enhance economic potential is more critical for the medium prospects. While there are predictably no game-changers here, reforms to the tax system allied with increased infrastructure spending are steps in the right direction.

The Office for Budget Responsibility (OBR) has yet to be convinced and lowered its estimate of trend growth as we advance.

Base rates

The softer outlook for the economy has an attached silver lining; these are the expectations that base rates are likely to remain lower for longer. 

As the higher rate of stamp duty kicks in for the buy to let investors next month, it is unlikely to prevent some slowing in the residential sales. Interestingly today is the announcement of the reform to SDLT for commercial transactions.

We are likely to see winners and losers through this. But most importantly, it provides the economy to grow to about the 2% mark. It is not unreasonable to assume that the market will remain underpinned even if London’s valuation prices are dearer.

Source: Simon Rubinsohn Chief Economist (RICS)

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