INSIGHT
Economic and property market review
May 2023
DATA & ANALYSIS
MARKET CONDITIONS
Economic trends
- The short-term outlook for the UK and global economies has become clouded by a series of bank failures and rescues in the USA and Europe. At the time of writing, regulators appear confident the crisis will be limited to a small number of banks, although financial markets have become volatile and the situation is fast moving.
- The Office for Budget Responsibility's latest forecast predicted the UK will avoid a technical recession in 2023. In general, many recent economic indicators, while clearly subdued, have exceeded forecasts. For instance, the Q4 GDP figure was revised upwards from zero to 0.1%. Late last year most commentators were expecting a negative reading for Q4.
- Recent months have seen the economy move into a ‘stop, go’ pattern, where GDP growth has periodically ground to a halt or contracted. GDP turned negative by -0.5% in December 2022, then rebounded to 0.4% in January 2023, then flatlined in February.
- CPI inflation fell by less than expected to 10.1% in the year to March 2023, down from 10.4% in February. Headline inflation is widely expected to trend downwards over the course of this year.
- At the March meeting of the Bank of England's Monetary Policy Committee (MPC) the decision was taken to increase the UK base rate by 25 bps to 4.25%. We believe the base rate is now approaching its peak for this hiking cycle, probably with another 25 bps hike coming in May.
- The unemployment rate was 3.8%, which was slightly up on the January figure of 3.7%. Nevertheless, this is low by historic standards and indicates a tight labour market.
- The UK composite Purchasing Managers’ Index (PMI) declined in March to 52.2 from 53.1 in February. A reading of above 50.0 suggests the economy is expanding.
- GfK's consumer confidence index stood at -30 in April, up from -36 in March, reflecting the recent easing in the rate of inflation.
Property market
- Oxford Economics is currently predicting 0.3% full year GDP growth in 2023, then 1.3% in 2024 and 2.3% in 2025.
- Recent months have seen the UK property investment market move into a downturn in the face of rising interest rates and a subdued economy. Occupier markets are showing initial signs of deceleration, and we expect them to be in a downturn by the Summer.
- Some open-ended property unit funds have imposed restrictions on the payment of redemptions, which is usually a sign of investor uncertainty. This will probably lead to some stock coming to the market for sale as the funds move to raise cash.
Retail
- In April 2023, UK retail footfall was 4.7% higher than the same month in 2022, according to Springboard. Compared to April 2019, footfall was down by -12.0%.
- Retail capital values rebounded in March with the MSCI index rising by 0.72% m-on-m, up from -0.45% in February. The return to growth was entirely driven by retail warehouses (1.25%).
Outlook
- For both the commercial and residential property markets the high level of economic uncertainty and evidence that prices are correcting have encouraged a ‘wait-and-see’ attitude among real estate investors. Across the markets there are reports of a mismatch between buyer and seller expectations on pricing.
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