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unsplash.comUK Housing Market Rebounds
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According to Bloomberg, UK house prices have risen for the second consecutive month following the Bank of England's interest rate cut, with Halifax reporting a 0.3% increase in August, bringing the average home price to £292,505 and marking the fastest annual growth since November 2022.
Impact of BOE Rate Cut
The Bank of England's decision to cut interest rates by 0.25 percentage points to 5% in August 2024 had significant implications for various sectors of the UK economy. The rate cut, which was the first since the pandemic, came after inflation in the UK had reached the BOE's 2% target for two consecutive months
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. This move was expected to stimulate economic growth and ease financial pressures on borrowers. In the equity markets, smaller companies and utilities were likely to benefit the most from the rate cut, as they are more sensitive to changes in the interest rate environment2
. For bonds, the surprise rate cut generally had a positive impact, as lower yields implied higher bond prices2
. However, the extent of the impact depended on how much the rate cut was already priced in by the market2
. The decision to cut rates was not unanimous, with the Monetary Policy Committee voting 5-4 in favor of the reduction, reflecting ongoing concerns about wage growth and persistent inflation in services3
.3 sources
Halifax vs. Nationwide Data
The Halifax and Nationwide house price indices often provide conflicting data due to differences in their methodologies and sample sizes. Both indices are based on their respective mortgage approval data, with Halifax (part of Lloyds Banking Group) having a slightly larger sample size of around 15,000 approvals per month compared to Nationwide's 12,000
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. However, Nationwide only includes owner-occupied properties, excluding buy-to-let mortgages, which Halifax includes2
. This can lead to discrepancies in their reported trends. For instance, in early 2023, Halifax reported rising house prices for three consecutive months, while Nationwide reported seven consecutive monthly falls3
. These differences highlight the importance of considering multiple indices and understanding their limitations when assessing the UK housing market1
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.3 sources
Autumn Budget's Potential Effects
The upcoming Autumn Budget 2024, set for October 30th, is expected to introduce significant tax changes as Chancellor Rachel Reeves aims to address a reported £22 billion gap in public finances
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. While Labour has pledged not to raise income tax, national insurance, or VAT, potential changes may target capital gains tax (CGT), inheritance tax (IHT), and pension tax reliefs3
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. CGT rates could be increased or aligned with income tax rates, and the lifetime limit for business asset disposal relief may be adjusted1
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. IHT thresholds might be frozen or relief schemes modified3
. Pension tax relief changes could include limiting income tax relief on contributions or imposing employers' National Insurance on high-level pension contributions5
. These potential measures aim to increase government revenue while balancing economic growth objectives.5 sources
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