The week ahead 02 April 2024 - Optimism builds on the outlook
What to watch out for in the UK economy and property market this week.
Oxford Economics has revised upwards its forecasts for UK economic growth, following recent survey evidence showing businesses have seen activity rebound in recent months. The economics consultancy is now predicting annual GDP growth of 0.5% for 2024 (up from 0.4% previously) and 2.0% for 2025 (versus 1.8% before). Oxford said they expected to see a boost for real incomes as inflation recedes, which bodes well for consumer-facing industries, such as retail, leisure and hospitality. Particularly in 2025, the time-lagged effect of the interest rate cuts that are predicted to start this summer will probably also help to boost the spending power of consumers. An improving outlook for the economy might encourage international investors to look closer at the UK property market.
As we reached the end of Q1 2024 last week, evidence emerged of a bifurcation in the financial markets. The FTSE 100 equities index has increased by 2.6% from the start of the year up to 27th March, although the FTSE All Share was up by just 0.5%, so blue chip internationally-facing corporations have outperformed. In contrast, bonds fell in price as 10-year Gilt yields increased by 33 bps this year, while BBB UK corporate bonds saw yields rise by 15 bps. In our opinion two forces were at work here. Bonds saw yields rise due to a repricing of interest rate expectations, with fewer Bank of England rate cuts now expected in 2024. However, confidence has been building amongst economists that the UK recession seen in Q3-Q4 2023 has not continued into 2024. This may have encouraged some optimism among equity investors.
This week will see several indicators released that will give us a better idea whether the housing market has truly reached the turning point. The Bank of England will publish figures on the mortgage market, and the Halifax will release its house price index. We expect both releases to add to recent evidence that a tentative market recovery has begun. Also out this week is inflation data for the Eurozone, and we are forecasting price growth to tick down again in the face of high interest rates.
Things to watch for this week
Tuesday, April 2nd
UK Mortgage Approvals, February
Previous: 55.3k
Forecast: 53.0k
Mortgage approvals have risen for four consecutive months up to January, as lower mortgage rates attracted buyers back to the market. We view the January figures as a spike upwards, so are predicting the numbers to settle back in February.
Wednesday, April 3rd
Euro Area Inflation, March
Previous: 2.6%
Forecast: 2.5%
Inflation fell incrementally in January and February as energy base effects fell out of the index, and higher interest rates slowed the economy. We are forecasting another modest decline for March.
Friday, April 5th
Halifax House Price Index, y-on-y, March
Previous: 1.7%
Forecast: 1.5%
The Halifax index has seen annual house price growth back in positive territory for the three months in a row. We are expecting a modest deceleration for March, but nevertheless we are predicting continued growth.
