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The week ahead 03 June 2024 - UK house prices returned to growth in May

03 June 2024

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

The latest indicators on the UK housing market were relatively encouraging given some figures have moderately softened recently. The Nationwide House Price Index increased by 0.4% month-on-month in May, up from -0.4% in April and ahead of the consensus forecast of 0.1% growth. The annual rate of growth remained unchanged at 1.3%. Separately, figures from the Bank of England showed the number of mortgage approvals declined slightly from 61,300 in March to 61,100 in April. This marks the third consecutive month where approvals exceeded 60,000, which we consider to be evidence of a healthy market. For much of this year, mortgage rates have increased, so we suspect the return to growth for the economy may be taking over as the driver of demand in the housing market.

Meanwhile in the Eurozone, the latest figures reported a stronger than expected rise for HICP inflation from 2.5% in April to 2.7% in May, exceeding the consensus forecast of 2.6%. Core inflation also increased from 2.7% to 2.9%. Of particular concern for the ECB will be a marked increase for services inflation, which rose from 3.7% in April to 4.1% in May. Services inflation is often viewed as a reliable gauge of whether an economy is seeing domestically generated price rises. This follows news that the unemployment rate for the Eurozone eased from 6.5% in March to 6.4% in April, which along with rising prices suggests the bloc’s economy is gaining momentum.

The big economic news story this week is the ECB’s rate decision on Thursday. Lately, ECB policy makers have been guiding that a cut is imminent, and despite the higher-than-expected inflation figures for May we are sticking to our forecast of a 25 bps reduction for the policy rate, as the ECB will be thinking more about the long-term outlook for inflation. Also, the British Retail Consortium will tomorrow release UK sales numbers for May. We are predicting an improvement following the fall reported in April.

Things to watch for this week

Tuesday, June 4th

BRC Retail Sales Monitor, y-o-y, May

Previous: -4.4%
Forecast: 1.5%

The April figures were disappointing due to Easter falling in March, plus poor weather. We are expecting a return to growth in May reflecting improving consumer confidence.

Thursday, June 6th

ECB Rate Decision, June

Previous: 4.50%
Forecast: 4.25%

The guidance lately from the ECB has suggested that they are moving towards a 25 bps cut, and do not feel obliged to track the Fed. Consequently, we are predicting a cut to 4.25%, but accept the risks surrounding this forecast are high.

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