The Chancellor was dealt a difficult hand with the decision of the statistical authority (ONS) to revise down the size of the economy and the financial turbulence at the start of the year. Despite this, he put up a robust performance in delivering the 2016 Budget highlighting the out performance of the economy against the UK’s major competitors.
Inevitably, there were issues surrounding the fiscal numbers with the budget only returning to surplus in 2019-20 and with a lot of goodwill. But in truth, whether this target is met has little real consequence for the real economy and is more of an issue for the credibility of the Chancellor who has put so much emphasis on this.
Enhancing economic potential
Much more important for the medium prospects are the latest raft of structural measures designed to enhance economic potential. While there are predictably no game changers here, reforms to the tax system allied with increased infrastructure spend are clearly steps in the right direction.
That said, for now the Office for Budget Responsibility (OBR) has yet to be convinced and actually lowered its estimate of trend growth going forward.
The silver lining attached to the softer outlook for the economy is the expectations that base rates are likely to remain lower for longer.
That is unlikely to prevent some slowing in the volumes of residential sales activity as the higher rate of stamp duty kicks in for buy to let investors next month. More interesting today is announcement on reform to SDLT for commercial transactions.
This is likely to see winners and loser but critically, providing the economy continue grow around the 2% mark signalled by the OBR and interest rates remain low, it is not unreasonable to assume that this market will remain reasonably well underpinned even though valuations do now look a little dear in London.
Source: Simon Rubinsohn Chief Economist (RICS)