2011 Predictions

publication date: Feb 14, 2011
author/source: Guest article from Coreco Group

2011 Predictions

Housing Market Predictions 2011

House Prices London and the South East: up 3%

A lacklustre start to the year is likely following the softening market towards the end of 2010, which saw house prices lose momentum and start to drift downwards after decent growth in the first half. Mortgage lending continues to be a drag on both prices and turnover as lenders continue to pull back in an attempt to pre-empt regulation from the FSA and their Mortgage Market Review.

Continued low stock levels will however provide some support to prices, with agents still reporting fierce competition for good quality properties. Meanwhile, the much talked about headwinds of decreased public spending and increased unemployment in this sector are unlikely to affect London and the South East unduly.

Interest from foreign buyers will also continue to support prices in prime areas of London. Overall, as the UK and Global economy continue to improve throughout 2011 and the regulatory environment becomes clearer, both buyer sentiment and lender appetite will improve to provide a boost to prices towards the end of the year, leading to a small increase overall.

UK Base Rate: end 2011 at 1.5%

While the Bank of England’s’ Monetary Policy Committee, (MPC) have demonstrated a dogged determination to ignore their own inflation target and maintain unprecedented low interest rates, a shot across the bows in the form of a couple of short, sharp rises at some point during the year seem increasingly likely.

Credibility is everything for a Central Bank and their government, especially when the latter’s borrowing remains at record levels, and they cannot be seen by international investors as willing to ignore inflation indefinitely. Nor can they let inflation expectations amongst UK business and employees rise too dramatically as this could lead to spiralling price and wage increases and create a vicious circle of inflation.

One further point which strikes this commentator, and has seemingly eluded every other, is that, when the MPC do increase UK base rate, if the economy does then take a turn for the worse they are allowed to reduce it again! With this in mind, a quick increase to keep a lid on inflation expectations looks like a sensible move.

FTSE 100: end the year 6,700

A good year for the global economy and corporate profits will see a healthy rise in the UKs blue chip index. Stock markets will however remain skittish as there are bound to be set backs along the road to recovery; some economic news is bound to disappoint, commodity prices remain stubbornly high, certain corporate’ will struggle to recover and issue profit warnings or worse, while the sovereign debt crises that started in Europe hasn’t drawn it’s last breath yet.

These jitters will interrupt the upward momentum at various points throughout the year, causing an otherwise healthy FTSE to stop short of its all time high of near 7,000 predicted by some analysts.

Guest Article by Coreco Group
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