Concluded in late June, Theresa May’s deal with the DUP for a ‘confidence and supply’ arrangement within the House of Commons has attempted to bring a degree of certainty to an otherwise uncertain climate. Following calls for the Prime Minister to resign after a very disappointing General Election result, it seems that Theresa May’s position has been bolstered for the time being.
Whilst not a coalition as such, the agreement gives the government a working majority of 13 MPs and commits the DUP to support the Conservatives on votes of confidence and budgets.
Without a working majority, the government’s hand in Brexit negotiations would have been considerably weakened. Indeed, a number of key policy indications have emerged since the General Election result.
Chancellor Philip Hammond’s Mansion House speech was welcomed by those in favour of a ‘softer’ Brexit. He highlighted the need for a business-friendly approach, which prioritises British jobs and prosperity. As Hammond stated: “when the British people voted last June, they did not vote to become poorer, or less secure.”
Although the chancellor’s speech went some way to appeasing business concerns over Brexit, significant economic challenges remain.
For example, inflation is now at a four-year high, causing a significant drop in consumer spending. Official data released in June showed that retail sales fell to 1.6% in May, bringing year-on-year growth to a four-year low of 0.9%. With wages failing to keep up with inflation, consumers are being squeezed at both ends.
The rise in inflation has caused a split amongst the Bank of England’s monetary committee (MPC), centred around its policy of a 0.25% base rate. In June, three MPC members voted in favour of a rate rise. While not enough to lead to a change in policy, it is the closest the MPC has been to raising rates since 2011. However, for now it seems that a rate rise is a while off. Mark Carney, Governor of the Bank of England, confirmed in his recent Mansion House speech that: “now is not the time to begin that adjustment.”
On the lending front, new data shows that remortgaging continues to grow in popularity. In its June market commentary, the Council of Mortgage Lenders (CML) confirmed “it is fair to say that the housing market has stalled.” Meanwhile, lending activity has continued to be stable, estimated to be £20.9 billion in May, on a seasonally adjusted basis.
The CML noted that the latest lending figures are likely to have been helped by remortgage activity as a result of low mortgage rates. It did not expect a further improvement however, with recent data showing a slight increase in the rates on offer.
Perhaps more encouraging is a report from Nationwide revealing that UK house prices had slightly recovered in June, erasing the decline recorded over the previous three months – the longest sustained fall since 2009. Despite the encouraging signs however, Nationwide’s chief economist cautioned that monthly growth rates can be “volatile, even after accounting seasonal effects.”
In the short term, the government is rightly focused on ensuring the fire safety of existing high-rise buildings, in the wake of the tragic fire at Grenfell Tower. It will no doubt fall to the newly appointed Housing and Planning Minister, Alok Sharma, to push through the expected regulatory changes.
In the longer term, while economic uncertainties surrounding Brexit, wage freezes and inflationary pressures continue, the government’s deal with the DUP has provided some clear political direction for the short term at least. It remains to be seen how long it will last.