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Enness Market Update – 28 Jan 2011

Author : Rubel Zaman

Ronan Keating couldn't have put it better - "Life is a roller coaster, you’ve just got to ride it". Yes the UK got onto the big dipper as output dropped in the final quarter of 2010 and risks being dragged back into recession after figures this week showed the economy has gone into reverse. The nation suffered a 0.5 per cent drop in output for the final three months of last year, with the severe weather which crippled the nation blamed for the fall. But even taking snow out of the equation would mean the economy was at a zero per cent standstill, confounding forecasts of growth of between 0.2 and 0.6 per cent. The data re-ignited fears of a double-dip recession by ending 12 months of growth and leaving the economy just 1.4 per cent up in 2010 - well below analysts’ predictions.

Despite the GDP figures business turnover during the last three months of 2010 was significantly higher than the same period in 2009, according to Bibby Financial Services with the new data indicating that the UK economy is still on track for gradual recovery. In December, Bibby's performance index dropped to 95.3, the lowest monthly reading since May 2010. Despite the short December trading month and adverse weather conditions, the overall index reading for Q4 2010 reached 99.5, an increase of 8.5% on Q4 2009.

With many developments coming to an abrupt halt in December due to the freezing conditions, it’s no surprise that house prices according to Hometrack fell by an average of 0.5% over the first month of 2011. Price falls were recorded across 37% of the UK in January, up just 1% from December. Surveyors reported that supply fell by 5.4% in January - the largest monthly fall for four years, while demand was down by 9.5%. Richard Donnell, director of research at Hometrack said "With recent rises in the cost of living, household budgets will come under further strain if concerns over rising inflation translate into higher rates. Mounting concern over a possible interest rate rise will act as a further dampener on demand." It is predicted that supply is likely to reduce further over the next six months, although this may not be enough to offset downward pressures on house prices in the short-term. The housing market in the UK is currently experiencing varying conditions depending on location. "Wide variations in the relative health of the housing market can be explained by different underlying dynamics between supply and demand," said Mr Donnell.

Research by the Financial Services Research Forum has found that brokers are by far the most trusted financial service. A survey of consumers found that brokers comfortably saw off banks, building societies, insurance companies and investment firms. Banks were the least trusted financial service. Despite being the most trusted, the level of trust placed in brokers has fallen over the last 12 months. Building societies were the second most trusted financial service. Forum director Professor Nigel Waite said that while brokers had once again stood out as the most trusted, they had earned lower scores than had previously been the case reflecting the consumer's concerns about the financial services market in general. "This shows there is work to be done in every category," he added.

The Bank of England's interest rate-setters were split three ways at their meeting this month, fuelling concerns that policymakers seeking to fix Britain's ailing economy have become paralysed. Two members of the Bank's nine-strong Monetary Policy Committee backed an interest rate rise to combat inflation, while another voted for looser monetary policy to tackle flagging growth. The other six voted for no change. The deep divide on the committee suggests the Bank will continue to maintain base rates at 0.5% at least until the summer, though several City economists said the surprise move by the recently appointed Martin Weale to join Andrew Sentance in the hawks' camp may have brought an interest rate increase closer.

Even with the country in political turmoil, taking a loan from its euro zone neighbours and severe austerity measures, it’s clear not all the Irish are in it together as Irish bankers may have won a reprieve from a tax that would have all but wiped out any bonuses they receive this year. The Irish Finance Minister said yesterday that it would be difficult to implement the tax he announced as part of the 2011 Budget. "There are difficulties in relation to the bank bonus surcharge that was proposed before the budget," Brian Lenihan told the state broadcaster RTE: "We would like to do it but there are immense legal difficulties....the Government had given me authority to deal with it but again it may be more difficult to do it in the very limited timescale." Late last year he announced a 90 per cent tax on bankers' bonuses that would be included in the Finance Bill, the last piece of legislation underpinning the 2011 Budget.

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Large mortgage brokers Enness Private Clients specialise in arranging large mortgage loans and remortgages, including Buy to Let properties.

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Submitted : 2011-02-12    Word Count : 853    Times Viewed: 348