UK Economy Looking Good for 2014

Going into 2014, and not wanting to tempt fate, but many of the figures that rely on to see how the UK economy is performing, are actually looking rather good!

Employment figures

The number of people in employment rose in 2013 by 485,000 of which 460,000 were full time jobs. All these new jobs are good for the economy as these wages will be spent and the government will receive more revenue through direct taxation like income tax and indirect taxation like VAT. In addition with more people in full time employment this will increase the number of people looking for a mortgage in order to buy a new home.

Residential property market and mortgages

Mortgage lending is on the increase and as more lenders come back to the market rates are becoming more competitive. This is helping the housing market where the number of houses sold in 2013 rose by 24%, and house prices have risen by 7.7%. The government’s help with deposits for first time buyers is helping to give the housing market the confidence and stimulus it needs. Although there are concerns about house prices rising at a much higher rate, much of this problem is a result of a continual house shortage. We have a demand for 200,000 new additional houses each year but we never achieve anything like this figure, falling short by 50,000 to 100,000 every year.

Inflation and interest rates

Inflation is now 2.1%, the government target is 2%, so this level is quite acceptable. We certainly don’t want to see inflation rising as this could put pressure on the Bank of England to raise interest rates. Obviously low interest rates are not good news for savers who receive a low return on their savings.

Concern about the Bank of England base rate of 0.5% is never far away but it is apparent that the Bank is keen to keep rates as low as possible for as long as possible as they want to see prolonged strong growth in the economy.

Originally the Forward Guidance Policy said they would not consider a review of the rate until unemployment falls to 7%. All the indications are that this could happen early this year, much sooner than originally anticipated. As a result the Bank will shortly announce that they will reduce this target to 6.5%.

Even when unemployment reaches this target level, if inflation is still under control and wage rises are reasonable, rates will remain low and most pundits do not anticipate any base rate increase in 2014.