The week ahead 18 March 2024 - The UK economy returns to growth

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

The latest UK GDP figures showed a return to growth in January 2024 of 0.2% month-on-month, following a contraction of -0.1% in December 2023. The increase owes much to two factors. Firstly, there was a strong increase in retail sales in January, which was in part due to discounting by department stores and other non-food stores. Second, there was a rebound for construction activity, with private sector house building as a bright spot. The boost for retail from discounting could prove to be short-lived, although it is a reminder that once inflation drops below pay growth the consumer can rebound quite rapidly. The rise in house building is good news for the property sector in general, as more stock and change of use is needed to correct significant market imbalances. Add on the tentative return of house price growth in recent months, plus lower mortgage rates, and we expect to see more interest in house building and change of use this year.

MSCI released its UK Monthly Index last week, which showed the All Property capital growth index declining by -0.40% in February. This marked a slight deterioration on the -0.34% recorded in January; but was still better than the -0.98% seen in December and -1.02% for November. On an encouraging note, the industrial sector was only just in negative territory at -0.04%. This strengthens our belief that industrial will be the first of the three main commercial property sectors to move into a recovery. Clearly, commercial property is still in a bear investment market, although the pace of decline for capital values based on the MSCI measure has slowed compared to late 2023. If investor optimism builds on the economic outlook then a turning point for capital values could be drawing closer.

This week will see the publication of UK inflation data for February, and we are predicting a small reduction in price growth. Our forecast is for a much sharper reduction to come in the April figures, when the new Ofgem energy price cap is applied. On Thursday the Bank of England makes its interest rate announcement, and is widely expected to leave rates unchanged. UK retail sales figures for February will be released on Friday, with a marked slowdown anticipated after a strong January. Meanwhile, ZEW will publish its index of economic sentiment for the Euro Area, and we are predicting an increase.

Things to watch for this week

Tuesday, March 19th

ZEW Euro Area Economic Sentiment, March

Previous: 25.0
Forecast: 28.0

With inflation easing and interest rate cuts anticipated in the coming months, we believe sentiment on the outlook for the Eurozone has probably strengthened in March.

Wednesday, March 20th

UK Inflation Rate, February

Previous: 4.0%
Forecast: 3.9%

We see inflation nudging down slightly in February given the mounting evidence that pricing pressures are easing, particularly for food and fuel.

Thursday, March 21st

UK Base Rate decision, March

Previous: 5.25%
Forecast: 5.25%

No change in the Base Rate is expected this month, however the markets will be listening carefully to the press conference for clues on when the first cut may occur.

Friday, March 22nd

UK Retail Sales Growth, m-on-m, February

Previous: 3.4%
Forecast: 0.4%

After a strong increase in January, we believe sales growth probably decelerated to a more sustainable level in February.

Ifo German Business Climate, March

Previous: 85.5
Forecast: 86.0

We are predicting a small improvement for March, as firms focus on the potential for a recovery in 2024 after a difficult 2023.