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The week ahead 23 January 2023 - UK property reprices at a record pace

23 January 2023

What to watch out for in the UK economy and property market this week.

Last week saw employment data for the UK which indicated the jobs market is decelerating, but still very healthy overall. The unemployment rate remained at 3.7%, compared to 4.0% on the eve of the Covid pandemic. Wage growth was a strong 6.4% in nominal terms, but -2.6% in real terms. The number of job vacancies fell for a seventh consecutive month, although there is just one unemployed person for every available job; pointing to a tight labour market. Redundancies were up, but still low by historic standards. Across the global economy growth is slowing, but demand for workers remains high, just not as buoyant as a year ago. That could bode well for a brisk recovery when the economy does reach a turning point, perhaps by the summer. Figures last week for the UK and Eurozone showing inflation continued to fall provide additional reason for optimism; although the December UK retail sales data (-3% on year ago) was disappointing.

The December MSCI (IPD) UK monthly index reported a -3.7% fall for all property capital growth, down from -5.9% in November. Since the index peaked in June, values have fallen by -26.9% for industrial property, -15.3% for retail and -15.0% for offices, amounting to a -20.0% correction for all property in six months. In comparison, the first six months of the 2007-2009 market downturn saw an -11.5% fall for all property, so a much faster repricing is occurring this time around. Market conditions are certainly not ‘worse’ today than in 2007-2009 – by December 2007 it was obvious a systemic financial crisis was unfolding. So, it is our view that investors this time around are eager to get the correction over with as soon as possible in order to resume trading. This tallies with anecdotal evidence that buyers are on the side lines waiting for the right moment. We believe that time could arrive as soon as the spring.

This week sees ‘flash’ PMI indices for a range of major economies, including the UK, US, and the Eurozone. We believe most locations will see month-on-month increases, but with readings below the 50 mark – the convention of the PMI indices is a reading over 50 signals growth, below shows a contraction. This points to a global economy that is less chilly than a month ago, but is still in the midst of a downturn.

Things to watch for this week

Tuesday 24th January

UK PMI Composite ‘flash’ Index, January

Previous: 49.0
Forecast: 49.3

December saw a division in the UK PMIs with the services index improving while manufacturing deteriorated. We believe strengthening global supply chains will help the manufacturing figures improve going forward.

Wednesday 25th January

Germany Ifo Expectations Index, January

Previous: 83.2
Forecast: 85.0

Since September, expectations on the German economic outlook have been gradually improving. Our forecast is better prospects for global exports and certainty on energy supplies will result in another increase for the index.

Thursday 26th January

US GDP, Q4 2022

Previous: 3.2% annualised
Forecast: 2.8%

The consensus view is the US will report growth that is down slightly on Q3 2022, but safely in positive territory. Worth noting is the Atlanta Federal Reserve’s GDP ‘nowcast’ is pointing to a higher figure for Q4 than the consensus.

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