In this week’s briefing, we take a look at the increasingly promising outlook for the housing market amidst what is being called a “blip” in prices and how AI could be negatively impacting the UK job market but businesses could harness its power positively.
We’ll also discuss the news that over half a million state pensioners will now be liable to pay income tax for the first time, and that after 20 months of contraction, UK manufacturing has returned to growth.
UK Economy
UK Manufacturing Returns To Growth
- The S&P Global/CIPS UK Purchasing Managers Index (PMI) found that UK manufacturing returned to growth for the first time in 20 months in March.
- Rising to a better-than-expected 50.3 from 47.5 the month prior – with any figure above 50 representing growth – both output and new orders had increased, whilst business optimism also hit an 11-month high.
- Other signs of stabilisation, such as rates of contraction in employment and purchasing activity “slowing sharply”, were also found.
- Rob Dobson, S&P Director, stated: “The main thrust of the expansion [came from] stronger domestic demand. The upturn in demand also led to improved confidence among manufacturers [...] some 58% of companies expect their output to rise over the coming year.”
Property
House Price "Blip" But Outlook Remains Promising With Prices Expected To Rise 4% YoY
- According to Nationwide, UK house prices fell 0.2% in March, but commentators have reiterated that the signs remain positive for the housing market’s longer-term outlook.
- The same data from Nationwide showed a 1.6% annual increase in house prices when compared to March last year.
- Robert Gardner, Nationwide’s Chief Economist, stated that the big picture showed that consumer sentiment is improving, adding: “Surveyor’s report a pickup in new buyer enquiries and new instructions to sell in recent months. Moreover, with income growth continuing to outpace house price growth by a healthy margin, housing affordability is improving, albeit gradually.”
- Bank of England (BoE) figures have also shown that net mortgage approvals for house purchases rose from 56,100 in January to 60,400 in February, a 17-month high.
- Describing the month-on-month fall in house prices as a “blip”, Rob Wood, Chief UK Economist at Pantheon Macroeconomics, said: “Forward-looking indicators continue to suggest house prices will keep rising as mortgage rates gradually tick down. We continue to expect house prices to rise 4% year-over-year in 2024.”
Technology
AI Threatens The UK Job Market But Businesses Could Harness Its Powers Positively
- The Institute for Public Policy Research (IPPR) has warned of a “jobs apocalypse” that could see almost eight million jobs be lost to artificial intelligence (AI).
- In their report, the IPPR placed entry-level, part-time and administrative jobs as the most at risk of being replaced by AI in the worst-case scenario.
- Examining 22,000 tasks across various job sectors, the IPPR found that 11% of tasks currently performed by workers are at risk.
- However, this figure could rise to 59% as technologies evolve to handle increasingly complex processes.
- On the other hand, the report states that in a best-case scenario for full augmentation of the workforce with AI, no jobs would be lost and the size of the economy could be increased by around £92 billion per year.
- Carsten Jung, Senior Economist at IPPR, said: “Already existing generative AI could lead to big labour market disruption or it could hugely boost economic growth. Either way, it is set to be a gamechanger for millions of us. But technology isn’t destiny and a jobs apocalypse is not inevitable – Government, employers and unions have the opportunity to make crucial design decisions now that ensure we manage this new technology well.”
UK Tax Update
Frozen Income Tax Threshold Means Over Half A Million State Pensioners Will Start Paying Income Tax This Week
- According to the Institute for Fiscal Studies, around 8.5 million over-65s will be liable to pay tax on their income from 6th April.
- This is up from around 4.9 million in 2010 and is due to state pensions rising in line with inflation, whilst the income tax threshold has been frozen at £12,570 until 2028.
- The state pension will rise to £11,502 this week and while this increase has been welcomed, it will result in pensioners with an additional income of over £1,068 per year now having to pay income tax.
- This has once again raised concerns surrounding the tax threshold freeze, and is just one example of how it will have a significant impact on hundreds of thousands of people’s livelihoods.
- As such, it’s more important than ever to be fully aware of the tax-efficient products that are available to you as you look to build your wealth and how they may fit into your financial planning strategy.
- For investors, this could include the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which benefit from up to 30% and 50% income tax relief respectively.
A Final Note
Reflecting on this week's briefing, we've witnessed positive moves in various sectors, including a noteworthy return to growth for UK manufacturing and a strong housing market outlook. Despite concerns about AI's impact on job markets, there is a clear opportunity for UK businesses to adapt, keeping the job market safe whilst driving favourable GDP growth.
Additionally, as frozen tax thresholds affect income for pensioners, it underscores the importance of having a robust, tax-efficient plan to protect your wealth now and in the future. It’s here that tax-efficient products such as the EIS and SEIS can become a crucial consideration for investors.
At GCV, we remain committed to providing the latest insights into the investment and wider economic landscape in order to support investors in making well-informed decisions when choosing where to allocate their capital.
If you would like to find out more about a number of tax-efficient investment strategies available to UK investors, discover our range of downloadable resources here.