The week ahead 03 March 2025 - House prices defy the economic slowdown
What to watch out for in the UK economy and property market this week.
The February Nationwide UK House Price Index reported year-on-year growth of 3.9%, which while down slightly on the 4.1% seen in January was also higher than the consensus forecast of 3.4%. The month-on-month growth rate accelerated, from 0.1% in January to 0.4% in February, compared to a forecast of 0.2%. For several months now we have seen stronger-than-expected house price growth data to the backdrop of a slowing economy and weak consumer sentiment. This shows the housing market is displaying remarkable resilience.
Indicators for the housing market are expected to now turn volatile. The increases in Stamp Duty Land Tax announced at the Budget will be introduced in April, so a surge in activity is forecast for March as buyers move to transact at the current lower tax rates. Then it is possible there will be a lull in April due to a lot of demand having been satisfied in the previous month. Nevertheless, we feel the housing market is looking firmly established in a new market cycle, and already there is evidence of developers and investors repositioning towards residential. Indeed 2024 saw a record £5.2bn invested into the BTR sector in the UK. Add on the widespread expectation that further Base Rate cuts are in the pipeline, and the prospects for house prices this year look positive.
One of the disappointing surprises of Brexit is that a UK/US trade deal has so far failed to materialise. However, on Thursday last week, President Trump hinted the UK may avoid additional tariffs through the negotiation of a trade agreement, which may include a deal on advanced technology. This requires a caveat, as the sticking points that undermined previous negotiations, mainly access to the NHS and food standards, remain potential stumbling blocks. Nevertheless, it is encouraging that the UK is one of the few advanced economies that might see its trade with the US strengthen in the coming years.
This week the ECB has to make a difficult decision on interest rates as it holds its rate setting meeting on Thursday. Inflation in the Eurozone has been rising in recent months, and that would normally count against an interest rate cut. However, we believe rate setters will remain focussed on the weak indicators seen lately on growth, and our forecast is the ECB will again reduce interest rates.
This week's figures
WEDNESDAY 5 MARCH
PMI Final UK Composite Index, February
50.6 previous
50.5 forecast
The preliminary figure pointed to a slight decline from 50.6 in January to 50.5 in February. We feel this matches the evidence of sluggish trading conditions shown in other economic indicators, so are not expecting any revision in the final PMI numbers.
THURSDAY 6 MARCH
ECB Interest Rate Decision, March
2.75% previous
2.5% forecast
Given the mounting evidence the Eurozone is struggling to achieve growth, particularly for manufacturing, we are forecasting another 25 bps reduction in the policy rate.
FRIDAY 7 MARCH
US Non-Farm Payrolls, February
143k previous
150k forecast
After strong employment growth in November and December, the payroll data slowed in January. We are predicting a modest recovery in February given the most recent data on the US economy has pointed to steady growth.
