The UK business environment is consistently recognised as being amongst the best in the world.
The Government attaches particular importance to better regulation and is committed to reducing the burden of regulation on business by 25% by 2010.
The Department for Business Enterprise & Regulatory Reform (BERR), through the Better Regulation Executive, leads on better regulation across Government. Reviews and evaluation of legislation are of key importance to the Department in developing policy and legislation.
UK Trade & Investment’s role is a proactive one of facilitating overseas investment in the UK and enabling domestic business to expand confidently overseas. As the UK Government’s international business development organisation, we help companies internationalise. Our services bring together a network of business sector specialists and support teams in British Embassies and posts all around the world.
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Kamis, 15 April 2010
UK economy
The UK’s diverse economy is the ideal location for companies to realise their international business potential.
The fifth largest economy in the world, the UK has a gross domestic product (GDP) of US$2,345 billion (Source: World Bank, 2007) and is forecast to have the strongest business environment of all major European economies for the period 2007 to 2011 (Source: EIU, 2007).
With a population of 60.6 million (Source: ONS, 2007) and unemployment well below the EU average, the UK has a strong workforce to support the economy.
It is a leading global trading nation, as the second largest exporter and third largest importer of commercial services, and the seventh largest exporter and fourth largest importer of merchandise
(Source: World Trade Organization, 2007).
The fifth largest economy in the world, the UK has a gross domestic product (GDP) of US$2,345 billion (Source: World Bank, 2007) and is forecast to have the strongest business environment of all major European economies for the period 2007 to 2011 (Source: EIU, 2007).
With a population of 60.6 million (Source: ONS, 2007) and unemployment well below the EU average, the UK has a strong workforce to support the economy.
It is a leading global trading nation, as the second largest exporter and third largest importer of commercial services, and the seventh largest exporter and fourth largest importer of merchandise
(Source: World Trade Organization, 2007).
Analytical Summary of UK Economic Context
As a result of the collapse of financial systems globally it is now very difficult for first time buyers to obtain mortgages, and many who are already on the property ladder have been pushed into negative equity. A sharp decrease in the demand for home ownership in the UK, as a result of a number of factors including the inability for many to arrange credit agreements, has pushed market values down significantly. This sharp decline in market values has seen many homeowners plunge into negative equity meaning that they are unable to sell their homes without first finding the capital to cover the shortfall in their mortgage debts. Increases in the cost of living, particularly price increases in essentials such as food and utility bills, have contributed to many homeowners being able unable to keep up repayments on their mortgages; this inflation has significantly reduced the amount of disposable income that households within the UK have, meaning that less money is spent on other goods and services in the economy and unemployment rises. Subsequently financial institutions are taking measures to repossess homes to recover some of their losses and selling them on at auction for prices far below market value, an action which only serves to further decrease the market values and plunge even more people into negative equity.
Massive devaluation of the Pound against other major currencies has seen imports rise in price, including food. Seventy percent of imported food is from Europe and therefore the fall in the exchange rate with the Euro means that the price that the public pay for this food has increased accordingly. In an attempt to combat the recession the Bank Of England has cut the interest rate to 2%, to encourage spending within the economy, a move that will hopefully minimise further rises in unemployment and see a rise in disposable income levels. A consolidation of the current unemployment rate, along with a decrease in the interest repayments of many buyers, would assist with slowing down the rate of repossessions and encourage some new buyers onto the market; and as a result slow down the declining market values. The slow down of the property market has seen developers’ profits fall significantly and they are switching to shared ownership or rental markets. With some experts predicting further falls in the value of property in 2009, building for the private housing market is likely to become even less profitable.
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Massive devaluation of the Pound against other major currencies has seen imports rise in price, including food. Seventy percent of imported food is from Europe and therefore the fall in the exchange rate with the Euro means that the price that the public pay for this food has increased accordingly. In an attempt to combat the recession the Bank Of England has cut the interest rate to 2%, to encourage spending within the economy, a move that will hopefully minimise further rises in unemployment and see a rise in disposable income levels. A consolidation of the current unemployment rate, along with a decrease in the interest repayments of many buyers, would assist with slowing down the rate of repossessions and encourage some new buyers onto the market; and as a result slow down the declining market values. The slow down of the property market has seen developers’ profits fall significantly and they are switching to shared ownership or rental markets. With some experts predicting further falls in the value of property in 2009, building for the private housing market is likely to become even less profitable.
www.hubpages.com
Government Intervention and Policy
Recently the government has taken steps to try and boost the financial markets and the economy, which will hopefully have some direct effect on the property sector. A 'bail out' of the banking system, and the cut in interest rates from 4.5% to 3% and then even further to 2% will hopefully see more money available to lend to investors, it is however essential that this cut in interest rates is passed on to borrowers. The cut in the interest rate will hopefully see a fall in the number of repossessions by making mortgage repayments for many homeowners cheaper. This cut will automatically be passed on to those with tracker mortgages; however it is at the discretion of the banks whether or not they choose to pass this on to other customers, currently 51% of mortgages are on fixed rate terms. It has been suggested by media that many businesses are urging the government to cut interest rates even further in order to encourage spending.
Asides from the interest rate cuts, Gordon Brown has also hinted at possible tax cuts and recently cut the rate of VAT to 15%. Any cuts in tax’s means people having more money to spend, increasing the amount of disposable income and hopefully encouraging spending, this would also help in some way to cut repossessions and thus possibly stimulate the housing market. The NAEA has asked the government to use the pre-budget report to remove stamp duty and help thousands of young people currently priced out of the housing market. It is claimed that the raising of the stamp duty threshold to 175k has helped certain parts of the country, particularly the North, with the lowest house price falls being in the North East (0.7%) and Yorkshire and Humber (1.1%). This could suggest that the change in the threshold could have had more impact in places where property values are lower, with few properties in much of the south costing less than £175,000. There is also great potential for political change with there having to be a general election before 3rd June 2010. Although it is too early to try and speculate on the outcome, all three of the main parties have different ideas about how they would try and overcome the recession. One particular manifesto proposal is from the conservatives who would like to cut the amount that companies have to pay in National Insurance which they believe would create 350,000 jobs.
www.ukinv.com
Asides from the interest rate cuts, Gordon Brown has also hinted at possible tax cuts and recently cut the rate of VAT to 15%. Any cuts in tax’s means people having more money to spend, increasing the amount of disposable income and hopefully encouraging spending, this would also help in some way to cut repossessions and thus possibly stimulate the housing market. The NAEA has asked the government to use the pre-budget report to remove stamp duty and help thousands of young people currently priced out of the housing market. It is claimed that the raising of the stamp duty threshold to 175k has helped certain parts of the country, particularly the North, with the lowest house price falls being in the North East (0.7%) and Yorkshire and Humber (1.1%). This could suggest that the change in the threshold could have had more impact in places where property values are lower, with few properties in much of the south costing less than £175,000. There is also great potential for political change with there having to be a general election before 3rd June 2010. Although it is too early to try and speculate on the outcome, all three of the main parties have different ideas about how they would try and overcome the recession. One particular manifesto proposal is from the conservatives who would like to cut the amount that companies have to pay in National Insurance which they believe would create 350,000 jobs.
www.ukinv.com
Effect on the UK Property Market
As a result of the inability of many borrowers to repay mortgages, massive increases in repossessions have been recorded with more than 45,000 repossessions expected by the end of this year, this equates to 6% of house sales. It has been suggested by many economists that the number of repossessions in 2009 will exceed 100,000, which is more than the record of 75,000 in 1991 during the last recession of the UK economy. According to the Council of Mortgage Lenders about 168,000 borrowers are said to be at least three months in arrears on their home loans. It could be argued that repossessions of homes only serves to further decrease the value of houses, as most of these properties will then be auctioned off at prices much lower than the ‘market value’, which in turn could help to drive down the market values.
A number of factors have contributed to the inability to repay mortgages, which has driven down prices. Inflation has increased to 5.2%, the highest rate for 16 years, meaning that the goods and services within this country have become more expensive. According to research the British have seen their disposable income levels fall by nearly 30% in the past two years, with the average household now having just 25% of their salary left after paying all essential outgoings including their mortgage and utility bills. Vocalink warns that people's incomes are being squeezed by a combination of rising living costs and falling take home pay.
The result of the unwillingness of financial institutions to lend money can be seen in the mortgage market, with mortgage approvals having slumped by 74% in the year to 1st December 2008, with just 32,000 mortgages approved in November. This contrasts with 115,000 in July 2007 and 88,000 in October 2007, it seems apparent that the ‘credit crunch’ had already begun to take effect. This appears to show that banks are increasingly less willing to lend money and that institutions are not willing to change their lending policies just yet. The value of mortgages loaned nationwide in the UK during October stood at just £458m, which equates to just 6% of the same month in 2007.
Property prices in the UK have fallen each month since autumn 2007, due to the decline in the availability of credit for those without a large deposit and high earnings. This has eradicated the first time buyer market, the majority of who are forced into the private rentals market. Surveys by Halifax and Nationwide suggest that house prices have fallen between 15-20% this year alone. Many industry experts are predicting further falls in house, including Jonathan Davis a chartered Financial Planner at Armstrong Davis who said "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at silly prices - the banks aren’t lending." The IPD annual property index returns for 2007 for all property showed a capital growth of -7.7% and negative total return of -3.4%. Halifax announced on 2nd January 2009 that they believe property prices fell by 16.2% over the course of 2008 according to the their own dedicated Halifax house price index, after they previously speculated on a final a annual figure of around 15%.
The drastic falls in demand for housing have naturally seen negative effects on the development industries. Bovis, as an example, reported that profits were down to £11.7m in the first half of 2008 from £58.4m in the first half of 2007. This fall in profits was due to housing revenue being down by 40% as a result of the fall in demand for property. However completions of social and partnership homes grew by 38% in this period. This is a familiar pattern across the residential sector with Kier redesign ting land for social housing as a result of a 60% slump in its order book; it announced that it had made the decision as social housing is standing up better than private homes and that the homes would be a mix of rental and shared ownership. Another organisation, Bellway, announced in November that it was the first developer to be given funding towards affordable housing and then retain ownership of the development. Normally grant funding is given directly to housing associations.
www.ukinv.com
A number of factors have contributed to the inability to repay mortgages, which has driven down prices. Inflation has increased to 5.2%, the highest rate for 16 years, meaning that the goods and services within this country have become more expensive. According to research the British have seen their disposable income levels fall by nearly 30% in the past two years, with the average household now having just 25% of their salary left after paying all essential outgoings including their mortgage and utility bills. Vocalink warns that people's incomes are being squeezed by a combination of rising living costs and falling take home pay.
The result of the unwillingness of financial institutions to lend money can be seen in the mortgage market, with mortgage approvals having slumped by 74% in the year to 1st December 2008, with just 32,000 mortgages approved in November. This contrasts with 115,000 in July 2007 and 88,000 in October 2007, it seems apparent that the ‘credit crunch’ had already begun to take effect. This appears to show that banks are increasingly less willing to lend money and that institutions are not willing to change their lending policies just yet. The value of mortgages loaned nationwide in the UK during October stood at just £458m, which equates to just 6% of the same month in 2007.
Property prices in the UK have fallen each month since autumn 2007, due to the decline in the availability of credit for those without a large deposit and high earnings. This has eradicated the first time buyer market, the majority of who are forced into the private rentals market. Surveys by Halifax and Nationwide suggest that house prices have fallen between 15-20% this year alone. Many industry experts are predicting further falls in house, including Jonathan Davis a chartered Financial Planner at Armstrong Davis who said "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at silly prices - the banks aren’t lending." The IPD annual property index returns for 2007 for all property showed a capital growth of -7.7% and negative total return of -3.4%. Halifax announced on 2nd January 2009 that they believe property prices fell by 16.2% over the course of 2008 according to the their own dedicated Halifax house price index, after they previously speculated on a final a annual figure of around 15%.
The drastic falls in demand for housing have naturally seen negative effects on the development industries. Bovis, as an example, reported that profits were down to £11.7m in the first half of 2008 from £58.4m in the first half of 2007. This fall in profits was due to housing revenue being down by 40% as a result of the fall in demand for property. However completions of social and partnership homes grew by 38% in this period. This is a familiar pattern across the residential sector with Kier redesign ting land for social housing as a result of a 60% slump in its order book; it announced that it had made the decision as social housing is standing up better than private homes and that the homes would be a mix of rental and shared ownership. Another organisation, Bellway, announced in November that it was the first developer to be given funding towards affordable housing and then retain ownership of the development. Normally grant funding is given directly to housing associations.
www.ukinv.com
Competitiveness of the UK
The wall street journal has reported that food costs are rising in the UK at a faster rate than anywhere else in the world and these can be blamed in part for the significant rises in inflation, food prices were 12.9% higher in September on the same period the previous year. The rising inflation takes money out of the pocket of the consumer and thus less money is spent within the economy, having knock on effects, particularly rising unemployment. The reason for such high food inflation can be partly blamed on the small farming sector of the country, in comparison to other countries such as France and the USA. The UK runs at a trade deficit of -1% for food, whilst the USA just about breaks even and France trades at a surplus. The UK has recently been hit by falling exchange rates against major economies, meaning that goods and services are becoming more expensive to purchase from other countries. To put this into perspective the UK currently purchases 70% of its food from Europe. Gas and Electricity have also risen sharply in the UK, in fact almost twice as much as the EU average, with prices rising 29.7% over a year compared with the EU average of 15%. Figures from OECD claim that German bills have increased by 12.2% and French bills have increased by 14%.
The exchange rate of the British pound has suffered against the currencies of other leading economies, meaning that the purchasing power of British people has suffered, helping to push up prices of goods and services, such as food which has already been mentioned. To emphasise the changes, in March 2008 the pound would purchase $2USD, but as of 19th December 2008 it is would purchase just $1.48USD. The picture is much the same with the Euro, with £1 buying 1.34 Euros in January 2008 but just 1.07 Euros by mid December.
www.marketoracle.co.uk
The exchange rate of the British pound has suffered against the currencies of other leading economies, meaning that the purchasing power of British people has suffered, helping to push up prices of goods and services, such as food which has already been mentioned. To emphasise the changes, in March 2008 the pound would purchase $2USD, but as of 19th December 2008 it is would purchase just $1.48USD. The picture is much the same with the Euro, with £1 buying 1.34 Euros in January 2008 but just 1.07 Euros by mid December.
www.marketoracle.co.uk
Overview of Economic Context
The world’s financial markets have recently experienced massive changes, which began to rear their head in Spring 2007. Although this can be attributed to many factors, many experts believe that this crisis arose as a result of banks lending too much money to sub prime mortgage markets, large proportions of which could not afford to maintain repayments. This in turn led to a shortfall of money within the banking sector, with many banks being unwilling to lend to each other. Financial institutions and systems globally have suffered as a result of this lack of money flow; the first bank within the UK to collapse was Northern Rock, who had offered many clients up to seven times their annual earnings at a very low interest rate. Following media publication that they had taken an emergency Bank of England loan, many individuals with savings accounts withdrew their savings deposits and other institutions refused to lend. The increasing unwillingness of the banks to lend money led to the use of the phrase ‘Credit Crunch’ to describe market changes. The UK economy, which had already been experiencing a slowdown in growth, has recently entered a recession which Ernst & Young predict will continue throughout 2009, with negative growth of around 1% during this period before gaining back this 1% in 2010.
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