The week ahead 03 April 2023 - UK GDP revised higher despite the strikes

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

Last week saw the UK GDP figure for Q4 2022 revised upwards from zero to 0.1%, and the Q3 figure also raised from -0.2% to -0.1%. The widely predicted slide into recession in the second half of 2022 not only failed to materialise, but there was even some marginal growth in the final months of the year. This was achieved despite the large number of strikes in Q4. Nevertheless, the industry level GDP data painted a very mixed picture. While services sector growth was revised upwards, eight of its 14 component industries saw activity decrease in Q4. This points to an economy where the various industries are seeing very different, almost contradictory, trading conditions. That makes for a complex environment for landlords when negotiating with tenants.

Turning to property, the sector has been drawing negative media commentary over concerns that recent pressure on banks could lead to more loan defaults. The MSCI European real estate mid to large cap companies’ equity index fell by -16% in the month to March 30th, thus underperforming the banks index (-13.4%). Events of the last month have raised the cost and reduced the options for those trying to refinance debt, which will nudge more assets towards the distressed category. This points to forced sales ahead, and arguably that is a good thing for the overall market by flushing out the uncertainty. Critically, there is dry powder on the side lines, which should mean those sales clear a path to the next real estate cycle, perhaps commencing in the summer.

This week sees the release of the PMI final data for March. ‘Flash’ estimates released over a week ago would have been based on responses from firms who submitted their questionnaires in the early days of the bank failures. The mood may have darkened among those who have replied since, so we are expecting some minor downwards revisions. Also, factory gate inflation figures for the Eurozone will be released tomorrow, which we expect to report prices are continuing to fall. This follows last week’s sharp fall in headline inflation in the Euro Area, although core inflation continued to increase to record highs driven up by services.

Things to watch for this week

Tuesday 4th April

Euro Area PPI inflation, February

Previous: 15.0%
Forecast: 13.7%

Producer price inflation has dropped sharply since its August 2022 peak of 44.3%. We see another decline coming, due to lower energy costs and the steady easing of supply chain bottlenecks.

Wednesday 5th April

UK Composite PMI, March

Previous: 53.1
Forecast: 52.1

The ‘flash’ figure for March was 52.2, down from 53.1 in February. We believe the additional survey results received since will be more downbeat due to the escalation in the bank failures story, resulting in a small downwards revision.

Friday 7th April

US Non-farm Payrolls, March

Previous: 311k
Forecast: 245k

Job creation is expected to cool further as the effects of the Fed’s interest rates hikes slow the economy, thus dampening labour demand.