The week ahead 11 March 2024 - Constrained finances result in a cautious budget

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

The spring budget saw the Chancellor deliver on the widely anticipated 2p cut in National Insurance and another freeze on Fuel Duty. As was also expected, this had to be part-funded by tax hikes elsewhere, such as abolishing the non-dom status and extending the windfall tax on the North Sea oil and gas sector to 2029. Our full discussion of the key budget measures can be found here, however the statement was mostly thin on content and we doubt it will make a great deal of difference to the outlook for either economy or the property sector. Quite simply the Chancellor lacked the financial firepower to do something more meaningful. This is a reminder that whoever wins the next general election will be limited in what they can do as a big task lies ahead in reducing the national debt.

Thursday saw the ECB announce its interest rate decision, with rates remaining unchanged at 4.0%-4.5% which matched market expectations. The central bank also revised down its inflation forecast from 2.7% to 2.3%, a move that will be seen as a step towards a future rate cut. The ECB President Christine Lagarde told the press conference the bank wants to see more data to ensure inflation is returning to target before it loosens policy, adding “we will know a lot more in June”. We are predicting the Bank of England and the US Federal Reserve will begin cutting rates around June or July. If our forecasts are correct, we believe the second half of the year could see a recovery for deal volumes for commercial property in the UK, Euro Area and North America. However, this requires the caveat that geo-political risks remain elevated.

This week will see the publication of UK GDP figures, and we are forecasting they will show the economy moved from recession in December to stagnation in January. Labour market numbers will also be released for the UK, which we believe will confirm the jobs market remains tight. Also, industrial production data for the Eurozone is out on Wednesday, and we are predicting a negative figure given recent downbeat survey evidence.

Things to watch for this week

Tuesday, March 12th

UK Unemployment Rate, January

Previous: 3.8%
Forecast: 3.8%

During this downturn the labour market has remained surprisingly tight due to a lower participation rate compared to pre-Covid. We believe the unemployment rate remained steady in January.

Wednesday, March 13th

UK GDP, m-o-m, January 2024

Previous: -0.1%
Forecast: 0.0%

Business survey data for January was upbeat, although the month also saw public sector strikes. We see these two opposing pressures cancelling each other out, causing growth to flatline.

Euro Area Industrial Production, m-o-m, January 2024

Previous: 2.6%
Forecast: -1.0%

The December industrial production figures were stronger than expected, although given the relatively downbeat survey data for manufacturing lately, we are forecasting a decline in January.