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The week ahead 08 April 2024 - Evidence builds that inflation is decelerating

08 April 2024

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

Shop price inflation in the UK slowed from 2.5% in February to 1.3% in March according to figures released last week by the British Retail Consortium. This continues the run of good news on inflation, which is increasing the likelihood of a Bank of England rate cut. We are predicting this will happen in June. With CPI inflation forecast to fall markedly in the coming months, we now expect households to see their financial situation strengthen going forwards, which will drive the consumer side of the economy. Indeed, in a note released last week, Oxford Economics predicted “a broader consumer-led recovery, underpinned by stronger real incomes”. From a property market perspective, that would suggest improving demand for consumer-facing real estate such as shops, restaurants, hotels and leisure assets. Separately, Eurozone inflation declined by 0.2 percentage points to a lower than expected 2.4% in March.

Last week also saw some mixed news on the housing market. On the positive side, the number of mortgage approvals increased from 56,100 in January to 60,400 in February, which exceeded the consensus forecast of 56,500. On a more downbeat note, Nationwide reported that its house price index had edged down by -0.2% in March on month-on-month basis; while the Halifax index fell by -1.0% on monthly comparison. Much of the good news for the housing market lately has come to a backdrop of falling mortgage rates, however March did see a small increase in rates. This is a reminder that the market recovery is at an early stage and is very interest rate sensitive. Nevertheless, with households now benefitting from real terms income growth, and the base rate forecast to begin falling this summer, we remain upbeat on the prospects for housing in 2024.

The big economic news story this week will be the ECB rate decision. Although it is widely expected rates will stay on hold, the financial markets will be listening carefully to the press conference for clues on when the first rate cut of this cycle may occur. Also, the UK will release monthly GDP figures for February. Tomorrow, the ECB Bank Lending Survey for Q1 will be published.

Things to watch for this week

Tuesday, April 9th

ECB Lending Survey, Q1

We expect to see a small improvement in financial conditions given recent expectations that rate cuts are in the pipeline.

Thursday, April 11th

ECB Rate Decision, April

Previous: 4.5%
Forecast: 4.5%

The guidance lately from the ECB has been similar to the Fed and the Bank of England – they are monitoring the data with a view to cutting rates further down the line. Consequently, we believe there will be no change at this meeting, but we are forecasting a cut of 25 bps in June.

Friday, April 12th

UK GDP, m-on-m, February

Previous: 0.2%
Forecast: 0.0%

The rebound seen in the January GDP figures was heavily driven by the retail sector, and we know sales growth dropped to zero in February. Consequently, we are expecting no month-on-month GDP growth in February, although we remain confident that overall Q1 GDP growth will be positive.

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