Economic summary

News

Since the last time this blog was updated, there hasn’t been too much positive news for the economy…

From the recent budget, Welfare reforms stole the headlines, hoping to save £3.4bn net by 2029-30. There are cuts to be made to departmental spending, although there is also an increase in defence spending. Finally, there is to be an introduction of more planning reforms, which should hopefully boost housebuilding in the UK by 305,000 homes a year by 2029.

Post budget, the OBR released its judgement; GDP growth was revised down for this year, from 2% to 1%, and inflation was revised up from 2.6% to 3.2%. However, the OBR expects inflation to return to the target rate (approximately 2%) from 2027 onwards. These revisions mean that tax revenues as a share of GDP are forecast to reach a historic high of 37.7% in 2027/28—a level last seen in the 1950s.

Aside from domestic policy, on the international stage there doesn’t seem to be a decrease in geopolitical tensions any time soon, with no sign of a peace deal between Russia and Ukraine and the introduction and ramping up of tariffs by Trump – Happy Liberation Day.

Indicators

In terms of housing indicators, there was a slight uptick in the average house price to £269k (January). Mortgage rates (both high and low LTV) decreased from the previous month, whilst mortgage approvals remained flat.

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Predictions

Overall

Positive growth is forecast for this current year, with steady growth up to the back end of 2027, where the average house price should breach the £300k mark for the first time.

Regional

There is forecasted house price growth for all regions and house types over the course of the next 12 months. However, there is a forecast to be a slight downtick in the next 6 months for houses in the East of England, North East, and Wales.

In the medium-term (24–36 months), big growth is predicted for the East Midlands (19%), Scotland (19%), and the South West (18%). In the long-term house price growth is predicted to fall slightly, though it’s predicted that the South West (16%) and the East Midlands (16%) have the highest growth rate. The North East looks to provide the slowest growth over the 5-year period, although it has seen rapid growth since the end of COVID-19 lockdowns, benefiting from the shift to hybrid/remote work and the “race for space”.

Local

Looking at the model’s forecast for medium-term growth (24 months), areas predicted to produce high growth are Northumberland, Angus, and Camden (I’ve left out K&C and CoL for reasons which I’ll mention later on*). In contrast, the lowest growth is forecast for Babergh, Dover, and Hartlepool. There still appears to be a trend of rising house prices in areas where hybrid working is most effective—specifically, in more rural locations that are within a commutable distance to cities. In the last release on this subject from the ONS, this hybrid pattern looks to have remained at around 30% of the workforce.

In terms of long-term growth, Elmbridge, Camden and South Derbyshire place top. South Derbyshire has seen strong house growth for the last couple of years from 2021 onwards: £209, £225, £245, £240 and now £254, with that trend set to continue. Prices in Camden and Elmbridge have remained fairly stable over the last few years, although they are expected to see strong long-term increases.

When it comes to local price predictions, areas of London feature quite highly when it comes to leading the predictions over the short and long-term. This is likely due to a reversal or stabilisation of trends observed over the last few years, where remote work (WFH) has become more feasible and outdoor space is increasingly prioritised. In terms of the weakest long-term house price growth, it tends to be the areas with higher unemployment and a decreasing/stagnating population.

*It’s important to note that the average house price in Kensington and Chelsea is currently £1.12m, down from its highs of approximately £1.6m between 2022 and 2023. The model therefore expects substantial recovery potential, though it’s worth keeping in mind that these averages can be skewed by high-value transactions – including one house that sold for £73.2m, which might not be for everyone…