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Next Budget: March 16th - positive signs!

Following the recent Autumn Statement, the UK Chancellor announced the date of the next Budget: Wednesday March 16th. This should be an interesting budget with so much going on economically both here in the UK and wider afield.

A recent report from the International Monetary Fund (IMF) highlighted a number of positive UK indicators - recent growth, employment progress and strong debt reduction. The IMF reported that “steady growth was likely to continue” but did highlight potential dangers including the high levels of government and household debt, and the size of the trade deficit.

UK House Prices Rise

According to the Office for National Statistics, UK house prices rose by 7% year on year. The Nationwide Building Society reported a lower annual figure of 4.5%, indicating that the average value of a property in the UK is now £196,999. The Bank of England Governor, Mark Carney expressed his concerns about the Buy-to-Let sector by indicating that lending to landlords continued to be too high.

The number of homes sold in the UK fell sharply in November, according to the latest figures from HM Revenue & Customs (HMRC). However, the November figure (106,000) was still higher than for the same month last year. House sales for the first 11 months of 2015 are very similar to those for last year.

These indicators and the Mark Carney input has prompted speculation that we might see more “help to buy” measures in the March Budget.

Other UK news included:

  • Positive inflation rate in November – rising to 0.1%

  • UK manufacturing had a poor year end, according to the Engineering Employers Federation (EEF). Overall, the EEF now expects manufacturing output to fall by 0.1% in 2015, and to rise slightly in 2016.

  • The Government delayed a decision on a third runway at Heathrow until at least the summer of 2016.

  • December ended with severe flooding in the North of England, with estimates putting the cost at £2bn so far.

  • The last of the current pound coins was minted.

  • Kellingley Colliery closed down, bringing deep coal mining in the UK to an end.

  • The FTSE started the year at 6,566 and closed at 6,242 for a fall of 5%


World Economic Highlights & Lowlights

World stock markets fell after the awful attacks in Paris in November. Overall economic activity continues to be depressed, largely down to the ongoing weaker demand from China. One indication of the weaker demand is the current record oil stock levels, which stands at 3bn barrels - this indicates that oil prices are likely to remain low well into next year.

Europe

December began with the European Central Bank (ECB) announcing more actions to boost the Eurozone economy. The overnight deposit rate was cut from -0.2% to -0.3% in a move intended to encourage banks to lend more. The ECB also extended its monthly €60bn stimulus programme by six months to March 2017.

Many analysts are still sceptical about the value of these stimulus packages and in December the Purchasing Managers’ Index for the Eurozone fell slightly to 54.0 (anything above 50 indicates confidence and growth).

The last quarter of 2015 saw the strongest growth in Europe for more than four years. The service sector reported its best gains since November 2010 and growth in manufacturing was also up.

There was also good news from Spain and Italy - retail hiring in Spain up nearly 2% on a year ago and business confidence in Italy also appears to be strengthening. In Greece, the government announced that there will be spending cuts and tax increases in their budget.

Both of Europe’s leading stock markets (Germany and France) did well in 2015, with rises of 10% and 9% respectively.

USA

The US Federal reserve raised interest rates by 0.25% to 0.5%, in the first increase since 2006. This is very likely to cause reaction around the world, adding to the pressure for a rate rise in the UK and will undoubtedly increase borrowing costs for developing economies, some of which are already struggling to grow.

The US economy added 211,000 jobs in November and the jobless rate remained the same at a seven year low of 5%.

The Dow ended December at 17,425 – down by 2% for December and for the year as a whole. Having started 2015 at 17,823 this was the Dow’s worst performance for 7 years.

China/Far East

China is to receive a $300m loan from the Asian Development Bank to help it combat dangerous pollution levels in Beijing and the surrounding area, which has been described as “‘jeopardising health and sustainable growth.

The Shanghai Composite Index closed at 3,539: up 3% in December and up 9.4% for the year as a whole. Hong Kong was down by 7% over the year, starting at 23,605 and ending the year at 21,914, having been largely unchanged through December. In Japan: the market fell 4% in December with Toshiba announcing a record loss of $4.5bn and 6,800 redundancies, however over the full year the Nikkei Dow rose 9% to close at 19,034. The South Korean index rose 2% for the year, having fallen in December.

Emerging Markets

Brazil’s recession is deepening; the economy shrank by 1.7% in Q3 and is now 4.5% down over the full year. In Russia the stock market was largely unchanged in December and up 26% for the year as a whole! However, the stock market gains do not tell the full story for Russia: 2015 was a desperate year for the rouble, which fell 26% largely thanks to the slump in the oil price. Russia is heading for a second year of recession, irrespective of what the stock market says. India had a disappointing year - it fell by 5% for the year as a whole.