The week ahead 04 March 2024 - Housing market strengthened in February
What to watch out for in the UK economy and property market this week.
The Nationwide Index reported that UK house prices returned to growth in February on the annual comparison (1.2%). The index grew by 0.7% month-on-month. The housing market has benefitted from falling mortgage rates for several months now. A return to growth for residential values might also be good news for commercial property as it may prompt more developer interest in change of use. Separately, Bank of England data showed the number of mortgages approved increased from 51,500 in December 2023 to 55,200 in January 2024. Also, mortgage repayments exceeded new lending – something which used to be an unusual occurrence but has happened in seven of the last 12 months. Higher interest rates have persuaded more borrowers to pay off their mortgages, which could result in higher consumer spending this year.
This Wednesday will see the Chancellor of the Exchequer’s spring UK budget speech, which will probably be used to draw battlelines for the approaching general election. It has been heavily hinted that the government want this to be a budget of tax cuts for individuals. In part, the Chancellor will probably gain some additional fiscal headroom via the Office for Budget Responsibility (OBR) raising its forecasts for growth and cutting its predictions for interest rates. However, significant tax reductions will likely require spending cuts as well, perhaps even some stealth taxes. This note is written on a Friday morning for Monday publication, and doubtless the weekend newspapers will have reported some leaks on the details of how all this might be achieved.
This week will also see retail sales figures for February from BRC, and we are predicting a similar annual growth rate to that seen in January. The ECB will announce its interest rate decision this week. No change is expected, but the markets will be carefully monitoring the press conference for clues on how far away a rate cut is. On Friday, jobs figures will be released for the US which we are forecasting will show a slowdown in recruitment.
Things to watch for this week
Tuesday, March 5th
BRC UK Retail Sales Growth, y-o-y, February
Previous: 1.4%
Forecast: 1.4%
With interest rates high but inflation easing, we believe retail sales growth in February will be in line with the January.
Wednesday, March 6th
Euro Area Retail Sales, y-on-y, January
Previous: -0.8%
Forecast: -0.4%
We believe high interest rates and the economic slowdown will result in a negative figure for January.
Thursday, March 7th
ECB Rate Decision, March
Previous: 4.5%
Forecast: 4.5%
No change is widely anticipated at this meeting, with the majority of economists polled by Reuters last week predicting the first policy rate cut for the Eurozone will be in June.
Friday, March 8th
US Non-Farm Payrolls, February
Previous: 353k
Forecast: 192k
The December 2023 and January 2024 non-farm jobs figures surprised the markets with their strength. Given the backdrop of high interest rates and big layoffs at the start of the year, we believe the February data will show hiring has decelerated.
