With a new Prime Minister the focus inevitably returns to the challenges ahead faced by the new Boris Johnson administration and of course there will be difficulties in achieving anything with such a narrow (DUP supported) majority in parliament. There remains little clarity over the path of Brexit with the no-deal risk increasing, and we may well have a general election sooner rather than later, either planned or forced. With both of the main parties struggling with a range of issues, the political uncertainty remains.
The economy has been growing steadily but slowed markedly in the last quarter primarily due to a fall in retail sales, a drop in car production and also partly reflecting an easing of stock-building ahead of the previous Brexit deadline where businesses were preparing for a no-deal Brexit scenario as of 31st March.
Growth in Q1 of 0.5% (according to the ONS) had been volatile ahead of the March deadline but growth in Q2 is expected to have been virtually flat. The expectation for Q3 and Q4 remains subdued as whilst there should be some bounce-back, the risk of a no deal Brexit has increased. The outlook for growth is therefore relatively flat.
On the positive side, elements of the economy are stronger, wage growth is at a high of 3.6% in the year to May (ONS) which continues to loosen the income squeeze and with inflation at the Bank of England MPC target rate of 2%, interest rates have remained unchanged in June and July at 0.75%.
The combination of life carrying on and a will to do business up against increasing Brexit concerns is a difficult mixture. Unsurprisingly, the real estate markets are subdued, demonstrating record low transaction volumes across the commercial markets and increasing polarisation in pricing between good quality and longer income assets, alternatives and opportunity properties, as compared to more unattractive secondary and tertiary stock.
The residential markets remain dynamic with buoyancy in the regions and the north, a relatively stable picture in central London whilst the London suburbs remain under pressure. Although as many are commenting, it does feel that we are at or near the bottom in the more difficult residential markets.
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