Duncan Farmer examines predictions for 2018
Making New Year forecasts might be a fun pastime, but is generally fairly pointless and they almost always turn out be wrong. However, Knight Frank’s predictions for the year ahead are a little bit different: to start with the forecasts actually look much farther into the future – as far as 2021; and second, they have a colour-coded chart explaining what could happen to knock its predictions off course.
The headline figures – London prices will fall by 0.5 per cent this year (2108) but climb thereafter to finish the four-year period to 2022 up by about 13 per cent. Other parts of the UK will fare better and the north-west for example will enjoy rises of about 16 per cent overall during the period. The colour chart examining risks is more interesting.
Knight Frank puts Brexit risk at 6 out of ten, where ten is the highest risk. It cites the dangers as being: “An unfavourable deal for the UK, or prolonged uncertainty past 2019. As well as wider economic implications, the lack of a deal could impact London’s status as a global financial centre.”
The good news so far is that although Theresa May and David Davis are struggling in their negotiations with the EU, stock markets seem relatively unconcerned by the uncertainty. At the time of writing the FTSE 100 index has risen almost incessantly since we voted to leave the EU 18 months ago. That can be explained by several factors: most FTSE companies are globally rather than locally focused and the weak pound has helped many of them. However, the FTSE 350, which is made up of more “British” companies, has performed pretty much the same, suggesting that investors are not too worried.
Linked to Brexit is what Knight Frank calls Political Upheaval and is also rated 6 in terms of risk. Another general election anybody? The prospect of interest rates rising faster than expected is rated at 5, and there is probably less chance of that happening unless Brexit and Political Upheaval upset the apple cart.
Property Tax Changes rank at just 3 as a risk for the country as a whole but jumps to 7 in the capital, as Knight Frank says: “After a series of changes to property taxes, policymakers implement more in purchase taxes. Any additional charges could curb activity.” Would the Mayor of London seek to raise money from homeowners to fund plans to build affordable housing or would the chancellor increase stamp duty of buyers of expensive homes, most of which are in the capital, to subsidise those buying less expensive homes?
As with most forecasts it is anyone’s guess, but it is as well to be aware of the risks.