Downside risks in the coming months
Posted on November 30th 2009
I saw Sir Stuart Rose, executive chairman of Marks & Spencer, giving an interview about the economy on television last week.
Similar to the mortgage market his business has seen a gradual improvement in 2009 as consumer confidence has risen.
But lurking in the not-too distant future are issues that could have a dampening effect on his business and the economy.
First, the reintroduction of full VAT will have an effect on confidence, but I was surprised to hear the government is thinking of boosting VAT to above its original 17.5% level.
This would be seen as a cynical move which takes advantage of the financial crisis – a classic example of providing a spoonful of sugar along with some nasty medicine.
Next, the decrease in the threshold at which Stamp Duty comes in will have a negative impact on potential first-time buyers.And higher earners will be hit with bigger tax bills from April, with a knock-on effect that can’t be quantified at this stage.
Meanwhile, swap rates are on the up and no doubt Bank of England governor Mervyn King’s comment that inflation will rise above 2% quickly next year will push them up even further.
The housing market has enjoyed a good run in the past six months but the next six will be more challenging. Chuck in a general election and you have a pretty unsettled period.Don’t kid yourself, the next six months have some significant downside risks.
DOCE:
