Isle of Man Finance

The Isle of Man economy is currently in its twenty fifth consecutive year of growth. The period since the mid-90’s witnessed a particularly impressive economic performance with real growth averaging almost 10% p.a. between 1997 and 2002 and although there followed a minor slowdown, the economy is currently back up to a growth rate estimated to be of around 8%p.a .

The key sectors in generating this performance have been financial services (this sector has grown by around two-thirds in the last six years) and professional services (growth of 50%). Banking generates typically around one fifth of the Island’s gross domestic product, with the rest of the finance industry adding another 15 to 20%.

One consequence of the economy’s performance has been an ongoing strengthening of public finances. Over the last seven years alone Treasury’s receipts more than doubled to stand at over £0.6bn in 2007.

An important element of the Island’s fiscal strength is the long established and self imposed legislative requirement that Government must budget for a surplus in respect of its annual revenue spending. Whilst meeting this requirement Government has continued to invest in developing and updating the Island’s infrastructure, for economic as well as social benefit.

This overall strength in the public finances has been recognised in the continued triple A ratings from credit agencies S&P and Moodys.

The Island’s unemployment rate has been below 1½% (of an economically active population of 41,000) for over eight years. But labour market conditions for employers are considerably eased through the freedom to recruit and transfer personnel from off-Island. Although the Island operates a work permit system, it does so liberally, as evidenced in the information that shows around 11,000 permits being granted annually and refusals running at below 100 a year. The ability to bring in labour from outside is a key factor in constraining wage pressures. It is also critical in enabling employers to recruit key personnel.

Increases in mortgage rates and energy prices have conspired to push retail price inflation on the Island to over 4% expectations are that the rate will remain stable or even reduce in the short term, as interest rates and hence mortgage repayments, begin to fall in the wake of global credit difficulties.

The combination of low mortgage rates, rising disposable incomes and an expanding population has resulted in increases in local house prices, but at 6% over the last twelve months the current rate of increase is not inconsistent with that being reported for the British Isles as a whole. Ongoing inward migration and a steady rate of build in residential housing are likely to contain increases to single digits in 2008.