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UK Construction Activity Picked Up in February but Outlook Remains Challenging

Britain’s third largest economic sector, the construction industry, has been mired in recession for three consecutive quarters. Economists are now looking for signs this downturn eased during February.

The UK construction industry enjoyed a surprise boost during February, according to the latest IHS Markit Construction PMI, although “there is little sign of an imminent turnaround in overall growth momentum”.

February’s IHS Markit PMI index rose to 51.4, up from 50.2 in January, when economists had forecast a much more meagre increase to 50.5.

This marks the first rise for the index in three months and, although IHS say the growth outlook remains bleak, it may provide some hope that the three-quarter downturn in the industry is now easing.

The PMI is a survey that measures changes in business conditions in the construction industry from month to month. It asks respondents to rate current conditions across a range of areas including employment, production, new orders, prices, supplier deliveries and inventories.

A number above the 50.0 level indicates industry expansion while a number below is consistent with contraction.

A sudden jump in commercial construction activity was the biggest contributor to February’s gains which, expanding at its fastest pace since May 2017, is notable because the commercial segment made the greatest contribution to 2017’s downturn.

“Civil engineering was the worst performing category of construction work, with activity falling at the sharpest pace for five months. A soft patch for house building continued in February, meaning that residential work remained on track for its weakest quarter since Q3 2016,” IHS Markit says.

“At the same time, strong input cost pressures were reported in February, with higher raw material prices, fuel bills and staff wages reported by survey respondents.”

PMI surveys frequently overestimate economic activity and IHS Markit Construction survey is no different.

The construction survey has printed only one number that is consistent with an industry recession during the last 12 months yet official output data shows the industry has contracted for three separate quarters.

Nonetheless, February’s report rhymes with the changing tone of the latest Office for National Statistics data, covering December, which showed the three-quarter downturn easing a touch in the final month of last year.

Construction is Britain’s third largest economic sector. Much of its earlier weakness was the result of commercial construction being hindered by Brexit uncertainty and oversupply of new office space in key hubs like London.

Residential activity has remained robust, in broad terms, although it has softened a touch of late.

The London market has been an exception to this as stamp duty tax changes and the outcome of the Brexit referendum in June 2016 have both hit demand for prime real estate in the capital.

Friday’s data comes closely on the heels of the IHS manufacturing PMI, which showed the manufacturing index slipping for the third month running as production slowed in February while export order book growth moderated a touch.

It also comes after a flurry of other gloomy news for the UK, the economy and its currency. Nationwide Building Society data released Thursday showed UK house prices falling 0.3% in February, following a brief and surprise pickup in January.

“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months,” Robert Gardner, chief economist at Nationwide, wrote in a note accompanying the figures.

The mortgage data followed an Office for National Statistics report released last week, showing the UK economy grew slower than was previously thought during the final quarter of 2017.

ONS says UK economic growth was in fact 0.4% during the final quarter, not the 0.5% previously suggested by the ONS, dealing a blow to observers who had cheered a last minute lift in UK economic momentum during 2017.

The annual pace of growth was also downwardly revised, from 1.8% to 1.7%, with the revised number marking a fall from the 1.9% growth seen back in 2016.

That was the result of downward revisions to industrial production figures, due to the closure of a key oil pipeline in the North Sea, and business investment having ground to a standstill.

This data came closely on the heels of the fourth quarter labour market report, which showed the unemployment rate rising for the first time since July 2015. The ONS attributed this to a rise in the participation rate rather than an increase in job losses.

All of this matters for the Pound because it could impact on the Bank of England and its thinking about whether the UK will be able to sustain another rise in interest rates. It hiked the base rate by 25 basis points already, to 0.50%, in November.

For what it’s worth, the fourth quarter growth performance was in line with the BoE’s forecasts and it’s well known now the bank’s primary concern is inflation, which sits stubbornly at 3%.

So far, the bank says it’s taken heart from the broad fall in unemployment over recent years, which is now beginning to push wages higher, and because of this it is less willing to play it cautious by holding back on interest rate rises.

Nonetheless, a further deterioration in UK economic conditions, particularly around unemployment and Brexit, may change this.

Source: Pound Sterling Live

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Saver Beware – Mortgage rates threaten your savings in 2018

People and families are warned that the real threat to their savings isn’t stock market volatility this week. The volatility of the stock market this month is creating serious concerns among people, with global indexes tumbling. Corrections on the likes of Dow Jones has seen them fall by over 1,000 points, with European indexes following suit.

Uncertainty on the market shouldn’t concern the average saver, however, but rising interest rates will cause problems. According to The Telegraph, personal wealth and savings are threatened by Interest hitting rates. This rise is especially true when it comes to the mortgage market which rises alongside interest.

Mortgage rises – A threat to personal Savings

The Bank of England’s recent diagnosis of the British economy has opened it up to calls for interest rate increases. While the rate remains static for now, 2018 is sure to see numerous additions to the 0.5% rate. Since September 2017, the level of borrowing for mortgages rose by over 14%, totalling £69.6bn by December.

For many families, multiples increases to interest rate threaten the finances of millions due to increased borrowing. When interest rates rise, any borrowing incurred by an individual/family, repayments increase in line with interest. According to The Independent, households are already seated in financial gloom this January, and likely to continue.

According to the IHS Markitt’s Household Finance Index, Households hit a record low in their financial wellbeing. And with proposals for a plural approach to interest rate increases, this well-being is set to get worse.

Source: Gooruf

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The UK economy grew slower than Europe for the first time since 2010

  • The eurozone’s economy outgrew the UK for the first time since 2010.
  • EZ economic growth was 2.7% in 2017, according to preliminary estimates.
  • That’s compared to just 1.5% growth in the UK, whose economy remains under pressure from Brexit uncertainties.

LONDON — For the first time in seven years, the Eurozone’s economy grew quicker than the UK’s last year, data from Eurostat confirmed.

Eurostat released its preliminary growth estimates for the final quarter of 2017 on Wednesday, which showed the bloc of euro nations growing at a combined 2.7% over the course of the year, having expanded 0.6% in the final quarter alone.

“Industry helped drive the euro-zone’s 0.6% expansion in Q4, and the outlook seems bright,” Stephen Brown, an economist at Capital Economics said.

Comparatively, data from the UK’s Office for National Statistics released in January showed the UK economy growing by 1.5% in 2017, as the uncertainty surrounding Brexit dragged on both consumption and investment, slowing growth down.

By contrast, the eurozone is positively flourishing, as it finally kicks into gear following years of recovery from the debt crisis which plagued the Single Currency area from 2011 onwards.

Wednesday’s data is no great surprise, and came in in line with forecasts, but does act as confirmation of the divergent economic fortunes of Britain and its neighbours across the channel.

“Overall, these data confirm that the expansion in the Eurozone is broad-based across all the economies,” Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics said in an email.

The broad based expansion of the eurozone economy is once again in contrast with the UK, which remains heavily reliant on the dominant services sector for the majority of its growth.

“The dominant services sector, driven by business services and finance, increased by 0.6% compared with the previous quarter,” the ONS said in its January release.

Source: Business Insider

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Economic Calendar – Top 5 Things to Watch This Week

Global financial markets will focus on this week’s Federal Reserve policy meeting, which will be the last under the leadership of Janet Yellen before she hands the chairmanship over to Jerome Powell.

There are also some major data releases in the coming week, as the calendar rolls to February from January, with Friday’s monthly employment data in the spotlight.

Meanwhile, in Europe, investors will await monthly inflation data to assess how fast the European Central Bank will start unwinding its asset purchase program.

In the UK, traders will focus on a pair of reports on activity in the manufacturing and construction sectors for further hints on the health of the economy and the likelihood of the Bank of England raising interest rates this year.

Elsewhere, market participants will be looking ahead to monthly data on China’s manufacturing sector amid recent signs that momentum in the world’s second largest economy remains strong.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Federal Reserve Rate Decision

The Federal Reserve is not expected to take action on interest rates at the conclusion of its two-day policy meeting at 2:00PM ET (1900GMT) on Wednesday, keeping it in a range between 1.25%-1.50%.

The central bank will release its post-meeting statement as investors look for any change in language which could point more clearly to a rate hike in the months ahead.

This week’s meeting will be the last under the leadership of Janet Yellen, before she is replaced by Fed Governor Jerome Powell.

The majority of economists believe that the Fed will hike rates in March, followed by another hike in June, with a third move higher arriving in December.

2. U.S. Employment Report

The U.S. Labor Department will release its January nonfarm payrolls report at 8:30AM ET (1330GMT) on Friday.

The consensus forecast is that the data will show jobs growth of 180,000, after rising by 148,000 in December. The unemployment rate is forecast to hold steady at 4.1%. Most of the focus will likely be on average hourly earnings figures, which are expected to rise 0.3% after gaining 0.3% a month earlier.

This week’s calendar also features reports on personal income and spending, which includes the personal consumption expenditures inflation data, the Fed’s preferred metric for inflation.

Data on consumer confidence, ADP private sector payrolls, pending home sales, ISM manufacturing sector growth, weekly jobless claims, construction spending, auto sales and factory orders will also be on the agenda.

Meanwhile, for the stock market, more than a fifth of the S&P 500 companies release earnings, with reports from tech heavyweights Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Alibaba (NYSE:BABA) likely to garner most of the attention.

Results from Dow components Boeing (NYSE:BA), AT&T (NYSE:T) and McDonald’s (NYSE:MCD) as well as big oil firms ExxonMobil (NYSE:XOM) and Chevron(NYSE:CVX) will also be in focus.

On the political front, another headliner this week will be President Donald Trump’s State of the Union address on Tuesday. The theme of Trump’s address will be “building a safe, strong and proud America,” a senior administration official told reporters on Friday.

According to the White House, the speech will focus on five main policy areas: jobs and the economy, infrastructure, immigration, trade and national security.

3. Euro Zone Flash Inflation

The euro zone will publish flash inflation figures for January at 1000GMT (5:00AM ET) Wednesday.

The consensus forecast is that the report will show consumer prices rose 1.3%, slowing slightly from 1.4% in December, remaining short of the European Central Bank’s target of just below 2%. Perhaps more significantly, the core figure, without volatile energy and food prices, is seen inching up to 1.0% from 0.9% a month earlier.

Germany, France, Italy and Spain will produce their own CPI reports throughout the week.

In addition to the inflation data, the euro zone will publish a preliminary report on fourth-quarter economic growth on Tuesday, which if they remain strong could push the European Central Bank another step closer to ending its mass stimulus program.

The region’s economy is forecast to expand 0.6% in the June-Sept. period, equivalent to an annualized 2.7%.

The ECB reiterated last week that it will keep its €2.5 trillion stimulus program in place for as long as needed and stated that there are “very few chances” that it will change interest rates this year. Despite those remarks, market players remain convinced that easy monetary policy in the region is coming to an end sooner rather than later.

The central bank cut its monthly bond purchases from €60 billion to €30 billion back in October, but extended the program until the end of September 2018, citing muted price pressures.

4. U.K. PMI’s

The U.K. will release readings on January manufacturing sector activity at 0930GMT (4:30AM ET) on Thursday, followed by a report on the construction sector on Friday.

The manufacturing PMI is forecast to ease up to 56.5 from 56.3 a month earlier, while construction activity is expected to weaken slightly to 52.0 from 52.2.

Data released last week showed Britain’s economy unexpectedly picked up speed in the last three months of 2017, revealing that Brexit was still weighing on the economy, but not as heavily as once feared by investors.

Politics is also likely to be in focus, as market participants keep an ear out for any news regarding the ongoing Brexit negotiations.

The Bank of England raised interest rates for the first time in more than ten years in November, but said it sees only gradual rises ahead as Britain prepares to leave the European Union.

5. Chinese Manufacturing PMI

The China Federation of Logistics and Purchasing is to release data on January manufacturing sector activity at 0100GMT on Wednesday, amid expectations for a modest downtick to 51.5 from a reading of 51.6 in December.

The Caixin manufacturing index, which focuses more on small and mid-sized firms, is due at 0145GMT Friday. The survey is expected to dip by 0.2 points to 51.3.

The purchasing managers’ index (PMI) is seen as a good indicator of economic conditions and it is even preferred by some analysts to gross domestic product, which might be affected by poor seasonal adjustment and is prone to revisions.

Anything above 50.0 signals expansion, while readings below 50.0 indicate industry contraction.

China’s economy grew 6.8% in the fourth-quarter from a year earlier, helped by a rebound in the industrial sector, a resilient property market and strong export growth.

Source: Investing

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UK economy unexpectedly picks up speed but Brexit effect felt

Britain’s economy unexpectedly picked up speed in the last three months of 2017, according to data which showed that the prospect of Brexit was still weighing on the economy, but not as heavily as once feared by investors.

Gross domestic product grew at its fastest pace of 2017, rising by 0.5 percent from the third quarter and beating the median forecast in a Reuters poll of economists that growth would remain at 0.4 percent.

But the Office for National Statistics said the big picture was one of a slower and more uneven expansion in the world’s sixth-biggest economy as it approaches its departure from the European Union in March next year.

In 2017 as a whole, growth was 1.8 percent compared with 1.9 percent in 2016, the slowest since 2012. For comparison, the International Monetary Fund expects growth of 2.4 percent in the euro zone last year.

Investors took the data as a sign that the Bank of England might move more quickly towards only its second interest rate hike in more than a decade.

Sterling added to its recent strong rise against the U.S. dollar and climbed against the euro. [GBP/]

The Bank of England said last month it expected the economy might have slowed slightly in late 2017.

“If the UK economy does indeed struggle to move up a gear over coming months, the Bank will likely have to tread carefully when deciding whether to raise rates again this year,” James Smith, an economist with ING, said.

“We don’t expect any change in policy from the BoE in February, but a rate hike at the May meeting is an increasingly close call.”

The BoE’s rate-setters are due to announce their next decision on borrowing costs on Feb. 8.

They raised rates for the first time since 2007 in November. Most economists have said they expect the next rate hike in late 2018 but some think it could come as soon as May.

Britain’s economy grew more weakly than other big rich nations for much of last year as the impact of the 2016 Brexit vote pushed up inflation and many businesses turned cautious ahead of Brexit.

However, Britain has been helped by the recovery in the world economy last year which is expected to carry on in 2018.

Finance minister Philip Hammond described the figures as excellence, underscoring the resilience of the economy.

BoE Governor Mark Carney said on Friday Britain could start to grow more quickly later this year, if there is clarity about its future relationship with the EU.

CONSUMERS SQUEEZED

While recruitment agencies, letting agents and office management firms helped boost growth, companies which relied on spending by consumers had a much slower fourth quarter.

Manufacturers, who have prospered from demand spurred by the recovery in the global economy, also grew strongly.

Separate data published on Friday showed personal insolvencies hit a three-year high, reflecting the financial strain on many households.

Given the strength of global growth, Britain’s would have grown by about 2.5 percent in 2017 were it not for the Brexit vote, Kallum Pickering, an economist with Berenberg, said.

Compared with the same period in 2016, growth between October and December slowed to 1.5 percent, its weakest pace since the first quarter of 2013 and down from growth of 1.7 percent in the third quarter.

The Reuters poll had pointed to growth of 1.4 percent.

Friday’s data showed Britain’s dominant services sector grew by 0.6 percent in the fourth quarter, gaining pace after growth of 0.4 percent in the third quarter, the ONS said.

In November alone, services output growth was the strongest since August 2016, jumping by 0.4 percent from October. The ONS said it was expecting no monthly growth in services in December given the scale of November’s increase.

Industrial output slowed to show growth of 0.6 percent from 1.3 percent in the third quarter after the Forties oil pipeline, Britain’s biggest, was closed for more than two weeks in December after the discovery of a crack.

Britain’s construction sector shrank by 1.0 percent, its worst quarterly performance since the third quarter of 2012.

Source: UK Reuters

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UK could recouple with global economy this year – Carney

LONDON (Reuters) – Bank of England Governor Mark Carney said Britain’s economy could start to grow more quickly and stop lagging behind the global economy later this year if there is clarity about Britain’s future relationship with the European Union.

“The world economy is accelerating, and we haven’t seen that yet,” Carney told BBC radio in an interview on Friday.

“There is the prospect this year, as there is greater clarity about the relationship with Europe and subsequently with the rest of the word, for a recoupling – if I can use that term borrowed from Gwyneth Paltrow – a conscious recoupling of the UK economy with the global economy.”

Britain grew more slowly than every other G7 country over the first three quarters of 2017 after the 2016 Brexit vote.

Official data due later on Friday is expected to show growth remained unchanged in the fourth quarter.

Most economists expect the BoE will raise interest rates towards end of 2018, but some think it could move as soon as May. The central bank raised rates for the first time in more than a decade in November as it saw signs that wages would rise more quickly after falling behind inflation.

Carney told the BBC that Brexit had cost Britain’s economy tens of billions of pounds in lower economic growth and companies had scaled back on their investment as they waited for more clarity on what Brexit means for them.

“Investment in advanced economies is growing at double-digit rates, and it is low single digits here,” he said.

Carney said he would not provide updated forecasts for Britain’s economy ahead of the BoE’s quarterly inflation report which is due to be published on Feb. 8.

Source: UK Reuters

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GBP USD and EUR USD close to multi-month highs

GBP: Thin runners

Although markets were thin yesterday with a lot of market participants opting for another day of festive rest, the pound was happy to run higher, predominantly against the USD. Cable hit a 3 month high yesterday and as of this morning sits about 0.5% away from its highest level since June 24th 2016; the day after the Brexit vote.

Yesterday’s UK manufacturing data showed that the sector continues to chug along at a decent rate buoyed by demand from export markets and domestic intermediate and investment sectors. UK goods are, courtesy of the weakened pound, on a Blue Cross sale at the moment but the news that providers to domestic consumers saw a slowing of demand will harden concerns over the outlook of the British shopper. Inflation within the sector remains at a high level too and we will have to keep a close eye on how much of this can be passed through to the end consumer and how much will have to come out of already stretched margins.
News from the construction sector is due this morning with the services sector reporting on Thursday. .

USD: Buttons and minutes

The dollar has recovered some of its 2018 losses overnight although remains weaker on the year still against the pound, euro, yen and most other major currencies.

Donald Trump is still playing a game of ‘my dad is bigger than your dad’ on Twitter vs Kim Jong Un. Following the North Korea leader’s announcement that the nuclear button “is always on my desk”, Trump tweeted “Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!”
Tonight’s Fed minutes release is from December’s meeting that saw the Federal Open Markets Committee hike interest rates for the 3rd time in 2017. This meeting and decision had two dissenters on that move although growth expectations had been revised higher thanks to the then expected passage of the Republican tax plan.
Although we are in the early days of 2018, there is very little change in the overall market psychology from the 2nd half of 2017. As a result the age old back and forth of inflation, wages, the impact of the US deficit on costs will be in focus for much longer.

EUR: Stronger sellers when it comes to pricing

News from the overall European manufacturing sector was enough to push EURUSD to within touching distance of its highest level for some near 3 years. Within the manufacturing numbers pricing pressures are tipping back into the hands of sellers as opposed to buyers which is a good thing for those looking for higher inflation and therefore higher interest rates from the European Central Bank in time.
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Eight things that will (probably) happen in 2018

1. Prices will continue to rise more than your pay for most of 2018

The cost of living is increasing at a near six-year high of 3.1%, having more than doubled during 2017, largely as a result of the fall in the value of the pound following the EU referendum in June 2016. Meanwhile, average wage growth is running at 2.3% (or 2.5% if you include bonuses) which means that real earnings are falling.

Household energy costs, petrol and car insurance have been among the worst culprits for price rises. Most of the big energy companies hiked tariffs during the year, with British Gas adding 12% to electricity bills in August. This time last year the average price of petrol on Britain’s supermarket forecourts was 111.9p a litre, but now it’s 116.5p. There’s not much we can do about that, unfortunately, although most experts are expecting a flat or mildly falling oil market in 2018 as US shale production continues to rise, offsetting attempts by the Organisation of the Petroleum Exporting Countries (Opec) to increase prices.

Car insurance has rocketed by an average of £200 over the past five years, according to Comparethemarket.com. Between September and November 2012, the average motor insurance premium stood at £559, but today premiums for the same three months have reached an average of £758 – a rise of £199. After years of increases in insurance premium tax, 2018 is unlikely to see further hikes so the inflation rate in car insurance may finally begin to slow.

Most economists expect the general price squeeze to continue through 2018, although there is some light at the end of the tunnel; the Bank of England is forecasting inflation to slip back to 2.4% by the end of 2018. Meanwhile, wage growth is expected to at least maintain its current rate, or moderately accelerate to above 2.5%, so Christmas 2018 could see the first recovery in real earnings for years.

2. Train fares will jump on Tuesday

The bad news is that the first big price rise of 2018 is just days away: on Tuesday UK rail fares will rise by 3.4% – the largest increase for five years. The rise covers “regulated” fares such as season tickets and long-distance journeys. But other fares can be raised or dropped at the train operators’ discretion. The price of an off-peak trip from Preston to Manchester goes up 6.6% to £16 from £15, while a London to Slough off-peak ticket is increasing by 9% from £9.60 to £10.50.

3. Letting agency fees will (eventually) be abolished

Tenants in England typically pay £404 every time they move, according to campaign group Generation Rent – and more than £800 in some parts of London. There can also be additional charges for tenants on low incomes and needing rent guarantors (at an average cost of £152), or simply needing to move in on a Saturday (an extra £62). But at some point in 2018 (the government has not given a precise date yet) England will follow Scotland and ban letting fees to tenants. Landlords threaten to retaliate with rent increases, but with a weak economy and lower pressure from migration, few experts reckon rents will rise by anything more than 0-1% in 2018.

4. Pensions will be the big money story of 2018

Many people could be in for a shock when they check their pay packet in April 2018. That’s because of a big change that will affect millions of people, who will see a bigger slice of their pay automatically diverted to a savings pot for their pension.

Automatic enrolment went live in 2012 and but the total minimum amount paid in is currently just 2% of qualifying earnings – made up of 0.8% from the worker, 1% from the employer and 0.2% in tax relief. However, on 6 April this will rise to 5% – typically 2.4% from the worker, 2% from their employer and 0.6% in tax relief. In April 2019 the total increases again, to 8%. So, if you are an affected employee, how much might you – and your employer – have to pay into your pension?

For someone on £20,000 a year, it means they will lose an extra £33 a month when they see their pay packet at the end of April 2018. Currently, they are contributing the minimum 1% of salary, which works out at £16.67 a month, including tax relief worth £3.33. From April, this will rise to £50 a month (with £10 of tax relief), then in April 2019 it will rise to £83.33 a month. Employers will also have to put in lots more. Expect the opt-out rate to rise in 2018 – and for employers to use their increased pension payments as an excuse not to give wage rises.

5. The state pension will rise, tax allowances improve, but council tax will go up

From 6 April, pensioners entitled to the full new state pension (with a full 35-year record of NI contributions) will see their payments increase by £4.80 from £159.55 per week to £164.35 a week, which means there will be nearly £250 a year better off. The old basic state pension will rise from £123.30 a week to £125.95.

On the same day the new personal tax rates will come into force, with the chief change an increase in the personal allowance – that part of your pay not liable for income tax. It will go up to £11,850, a £350 increase from the current level. In practice, it turns into a £70 saving for a basic rate taxpayer, as it means that £350 more of their income is not liable to 20% income tax.

But much if not all of this will be taken up by potentially large increases in council tax. In a move slipped out just before Christmas, the government allowed local authorities to raise council tax by up to 5.99% next year. All councils will be able to raise council tax by up to 2.99% next year to fund local services, which is 1% more than this year. On top of this, 152 councils, which includes all London boroughs, unitary and metropolitan authorities and county councils, will be able to increase it by an additional “precept” 3% to fund social care services.

6. House price rises will slow to a dribble

Most people, particularly first-time buyers, will welcome a pause in house price growth, with most of the experts predicting just 0-2% rises in property prices in 2018 – and falls in the capital. For the first time since the financial crisis, earnings are likely to rise faster than property prices.

7. Interest rates will rise, and the stock market will wobble

Another 0.25% increase is expected in late spring, taking the Bank of England base rate to 0.75%. But unless the economy displays some unexpected perkiness, that should be the last rate rise of the year, so mortgage rates will stay low.

In 2017 the FTSE 100 enjoyed a rise of nearly 500 points, or more than 6%. In Frankfurt, the Dax index surged 13%, while on Wall Street the gains were even higher, with the S&P 500 advancing 18%. But after such a strong run – and with more interest rate hikes expected in the US – few believe 2018 will be anywhere near as good as 2017, with some predicting a major wobble in the market some time during the year.

8. The taxman will soon come knocking

Maybe you were one of the 2,590 people who used Christmas Day to fill in their tax return. But for the others who didn’t, the 31 January deadline looms.

If you are filing your 2016-17 return online for the first time, you will need to create a government gateway account if you haven’t already done so. Go to gov.uk/topic/personal-tax/self-assessment.

Angela MacDonald, head of customer services at HMRC, says filling in your tax return can be done anywhere and at any time, using your phone, tablet or computer. There are online webchats, live webinars, YouTube videos and social media support that can be accessed at any time, she adds.

Source: The Guardian

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How to make 2018 your richest year yet

January is probably the tightest year of the month for many of us as we recover from the financial hit of the festive season.

But if you’ve overdone it on spending, there are some tricks you can use that will not only go some way to repairing the damage, but will also help to set you up for a more financially successful year ahead.

Financial experts have shared their top tips and predictions for the year ahead with Femail to ensure you use upcoming changes in legislation and interest rates to your advantage and boost your bank balance.

From investing in gold to purchasing second-hand jewellery with a renowned brand name such as Tiffany, these are the hacks that will ensure 2018 is your most abundant year yet.

‘The bank of England Base rate is likely to increase over the next couple of years to around per cent according to the Governor, Mark Carney,’ said Mark Homer, co-founder of Progressive Property.

‘As long term fixed rate mortgages are still cheap a 10 year fix may be preferable. Barclays has a 10 year fix at 2.69 per cent which just has to be a good deal.’

Some of the cheapest fixed rate deals have been removed by banks because of the interest rate rise, so if you’re looking to remortgage in 2018, you could well end up on a higher rate.

But Tashema Jackson, money expert at uSwitch.com points out that rates have only gone back to 0.5 per cent, where they sat for almost nearly nine years – so there’s no need to panic about them shooting up just yet. 

‘However, don’t be seduced into thinking that a lower interest rate is automatically cheaper,’ she said. ‘Take some time to calculate if the lower rate and higher fee is actually cheaper. It could save you a fair bit of money in the long run.’

She added that it’s crucial not to rely solely on information from your broker.

‘Many mortgage brokers will have exclusive deals from particular banks,’ she explained.

‘That’s why searching and comparing what is on offer from different providers can really help give you a better understanding about what is currently on offer from the mortgage market,’ she explained.

Don’t assume this means you know best, but being informed is always worthwhile. You may be able to give yourself a leg up before committing on a particular one.’

‘When the initial term of a mortgage ends, lenders transfer customers onto their Standard Variable Rate (SVR). This typically has a much higher rate of interest,’ said Ishaan Malhi, CEO and founder of online mortgage broker Trussle.

‘Nationwide is offering a two-year fixed rate of 1.99 per cent while their SVR sits at 3.99 per cent, for example.

Set a reminder to look into your options with a broker three months before your initial term ends to avoid paying over the odds. Just one month on your lender’s SVR can cost you hundreds of pounds in extra interest.

‘Interest rates may have crept up recently but they’re still historically low,’ Ishaan added. ‘If you’re in a position where you can afford to overpay on your mortgage, this is a good idea as it can reduce your overall debt. This will be harder to do when interest rates rise further, which they may do in the coming years.

‘Check with your lender about how much you can overpay by each month since there’s usually a limit before a penalty applies. For most fixed-rate deals this is usually up to 10 per cent of the remaining mortgage balance per year.’

Mark Homer More points out that permitted development rights for homeowners are likely to come in the New Year from the government.

This will likely allow people to extend their properties and make other alterations without the need for planning permission.

‘Rather than Moving house this could be a great option for those looking for more space who also would like to create equity in their home,’ he added.

Experts at Hitachi Personal Finance agree that you should look to improve rather than move.

‘Typical property prices jumped around £85,000 in the first half of 2017,’ they said.

‘So spending on property renovations instead – such as creating an extra room out of wasted loft space, new kitchens or bathrooms – could potentially add significantly more space, and serious value too. The average a loft conversion could add to the value of your home is 12 per cent, so it’s well worth considering all options.’

Mark Homer recommends Paragon Bank, who is offering a 120 day notice savings account at 1.45 per cent which trumps savings products offered elsewhere.

‘Should you be happy locking your money away for four months this would appear to be a good option to help reduce the effect of inflation on your capital,’ he said.

Julian Hynd, Chief Deposits Officer at Ford Money says that a number of factors could push up interest rates in the coming year.

‘The Bank of England is expected to increase the base rate further, while the Funding for Lending Scheme (FLS) to boost bank lending to households and companies comes to an end in January,’ he said.

‘Our research shows that almost three in five UK savers do not know what interest rate their account pays while nearly half only review their accounts once a year or less.

‘Finding a savings account that pays a fair and consistent rate over time could mean one less thing for savers to be worried about with any interest rate changes and ensure savers get the most out of their money.’

Jamie Smith-Thompson at pension advice specialists, Portafina, explained: ‘You don’t have to be Nostradamus to predict that Brexit will continue to create economic uncertainty in 2018. And this could leave people facing sudden changes in circumstances that put a strain on personal finances. One of the best ways to counter this uncertainty is to keep six months’ worth of outgoings as an emergency fund. It can soften the blow of any nasty surprises and give you the time and space needed to make the best decisions.’

Jamie Smith – Financial Adviser at Foster Denovo comments predicts a change to pension tax relief in the next 12 months.

This is most likely to be in the form of a reduction to the annual allowance, which is the amount that can be saved into a pension scheme and still benefit from tax relief within a given tax year,’ he said.

‘Although a reduction would not affect the vast majority of people, those who can afford to maximise pension funding should consider doing so before any new restrictions are introduced.’

Jamie warns of growing instability in the UK due to uncertainty around Brexit and recent downgrading of growth forecasts.

‘Anyone within a few years of accessing any stock-market linked savings should be reviewing their portfolios and the underlying risks,’ he said.

‘For example, if you are planning to retire over the next few years you may want to consider de-risking your pension funds and moving these into less volatile asset classes.

‘Some pension providers will do this automatically, which is known as ‘lifestyling’, but certainly many pension plans will not have this function.

‘Those who have a longer term investment horizon of at least five to ten years before they plan to access and spend their savings may not need to be as concerned but it is still a good idea to review their portfolios.’

Adrian Ash, Director of Research at BullionVault – the world’s largest online trading platform for precious metals insists gold will act as a way to protect wealth as well as to increase it in 2018. 

‘Those who forget history are doomed to repeat it, and investors seem to have forgotten both the global financial crisis and the DotCom Crash where gold investing could have helped preserve investors’ wealth,’ he said.

‘Demand for gold sank in 2017 as stock markets surged, yet gold has risen for UK investors in every year that the stock market has fallen by 10 per cent or more.’

Dr. Johnny Hon, Chairman – The Global Group says 2018 provides ‘fantastic opportunity’ for investing in media and entertainment ‘as the global middle class grows and technology develops’.

He added: ‘Virtual Reality (VR) and Augmented Reality (AR), made famous by Pokémon GO, open up new ways of watching and shopping while viewing TV and movie content. Significant returns are to be made here.

‘Property continues to be a good investment and one that again features many innovations. One that will appeal to many younger people in particular, is the new concept of co-living, which, by using shared spaces and facilities, creates a more fulfilling lifestyle, that not only offers concierge and cleaning services, but also creates a genuine sense of community through shared spaces and facilities. With building land at a premium, this has a great future.

Stuart Law, CEO and founder of Assetz Capital says that more people are turning to Peer-to-peer (P2P) as an alternative to saving.

‘P2P platforms directly match people wanting to invest money with those requiring a loan, cutting out the middle-man and giving investors a choice in where their money is lent,’ he explained.

‘The rates of return can be attractive in the current climate of low interest rates, although it’s important to be aware that – as with most investments – capital is at risk and the amount invested is not covered by the Financial Services Compensation Scheme (FSCS) as it would be if held in a bank account.

‘Most P2P lenders are now fully authorised by the Financial Conduct Authority (FCA), but anyone thinking about investing money in this way should still ensure they’re using an approved firm.’

It’s something you might ignore until you’re considering applying for a loan, but it provides a useful snapshot of all your bills from mobile phone, to gas and electricity bills, as well as credit cards, loans and mortgages, according to Tashema Jackson, money expert at uSwitch.com.

‘You’ll also be able to check that all the information it contains is correct,’ she added. If you notice any errors you can contact the relevant lender and ask for them for a correction, but bear in mind that you will be expected to provide proof that a mistake has been made.

‘Doing a bit of research will also let you know if any lenders have a particular offer on, such as cashback on mortgage payments, or preferential interest rates to existing customers.’

Source: Brinkwire

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Bank stress tests: longer-term resilience of lenders to be revealed

For first time lenders including RBS have been tested on resilience over seven-year scenario and not just to economic shocks

The Bank of England is to reveal the damage inflicted on the UK’s biggest lenders from £30bn of hypothetical consumer loan losses, an economic downturn and a collapse in the pound.

Threadneedle Street’s latest health check on the sector – the first was conducted in 2014 – could have an impact on a bank’s ability to pay dividends and on its business models. The lenders could be forced to sell off assets or ask existing shareholders and bondholders for more cash if they fail the tests based on hypothetical scenarios intended to put the sector under severe stress.

The results will be published on Tuesday alongside the Bank of England’s latest assessment of risks to the financial sector against the uncertainty created by Brexit.

Royal Bank of Scotland, which is still 70% taxpayer-owned, will be closely watched after it failed the stress test a year ago, and because it is being readied for privatisation by the chancellor, Philip Hammond.

In last week’s budget, the Treasury said it wanted to sell off £15bn of its stake in RBS, which is worth about two-thirds of the bank’s current value, even though this would leave taxpayers with a £26bn loss.

As well as RBS, results will be published for Barclays, HSBC, Lloyds Banking Group, Standard Chartered, Nationwide Building Society and the UK arm of the Spanish bank Santander. All are holding more capital than before the credit crisis and their financial strength has been measured against a series of hypothetical scenarios, including a 4.7% fall in UK GDP, a 33% fall in house prices, interest rates rising to 4% and 27% fall in the pound.

Threadneedle Street has already warned that under the scenario lenders could incur £30bn of losses over three years through lending on credit cards, personal loans and car finance. On Tuesday, it is expected to become clearer how the £30bn is distributed among lenders and which lenders the Bank of England has demanded hold extra capital against these loans.

Each lender has its own pass rate and the Bank will announce how each has coped with the tests.

For the first time the lenders have been tested not only on their ability to withstand economic shocks. They have also been tested on an exploratory scenario that will examine banks’ resilience over seven years of weak global growth, low interest rates and high legal costs and fines for misconduct. It will also look at the viability of their business models.

RBS is facing the added uncertainty of a multimillion pound settlement with the US Department of Justice over the way the bank packaged up and sold mortgage bonds in the run-up to the financial crisis. RBS has said it wanted to reach a settlement for this residential mortgage bond securities (RMBS) scandal. On 23 December last year, the DoJ extracted $12.5bn in settlements from Deutsche Bank and Credit Suisse in relation to this toxic bond mis-selling scandal.

Gary Greenwood, an analyst at Shore Capital, said this so-called conduct risk could lead to a “technical fail” for RBS, which last year had to cut back on risks when it did not meet the hurdle rate.

Analysts at Royal Bank of Canada do not expect RBS to fail and point out Barclays has a higher hurdle rate and in last year’s tests had higher losses on consumer finance than average.

Source: The Guardian