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The week ahead 11 September 2023 - Bank Governor says interest rates are "nearer" the peak

11 September 2023

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

The pound fell against the US dollar last week following the Bank of England Governor’s meeting with a Parliamentary committee where he suggested the peak for the UK base rate was close. Andrew Bailey told MPs: “I think we are much nearer now to the top of the cycle”; then added: “I'm not therefore saying we're at the top of the cycle, because we've got a meeting to come, but I think we are much nearer to it, on interest rates, on the basis of current evidence”. Analysts interpreted the comments as a hint that the Base Rate (currently 5.25%) will peak at the next Bank of England policy meeting with a 25 bps increase to 5.50%. Two weeks ago, the Bank of England’s Chief Economist, Huw Pill, gave a speech hinting that he also favoured a peak for interest rates sooner rather than later, but wanted rates to plateau for some time, i.e. higher for longer.

Expectations on interest rates have been volatile this summer. As recently as July, financial markets expected the Base Rate to rise above 6.0%. This uncertainty has been bad for property investment, and some in the market are now writing off the rest of 2023 and looking to next year for a recovery. If interest rates do peak later this month – the Bank makes its announcement on 21st September – it might be too late to spark a Q4 2023 rebound, but prospects for 2024 will strengthen. Oxford Economics are predicting very low GDP growth in the first half of 2024, which may mean a property investment recovery will be weighted towards the second half of the year, with the Spring as a period of market research and asset identification. Moreover, we would expect an initial preference among buyers for prime and long let assets.

This week sees the release of UK labour market figures, and we expect them to confirm that unemployment is continuing to increase in the face of rising interest rates. This should reassure the Bank of England that the risk of a wage-price spiral is receding, clearing a path for interest rates to reach their peak. Also, the Eurozone’s central bank, the ECB, holds its policy meeting this week where the decision is likely to be finely balanced between a hike or remaining unchanged at 4.25%.

Things to watch for this week

Tuesday 12th September

UK Unemployment Rate, July

Previous: 4.2%
Forecast: 4.3%

The UK labour market has been slowing for several months now, as rising interest rates decelerate the economy. Consequently, we are predicting a rise in the unemployment rate in July, and expect this figure to increase further for some time to come.

US CPI Inflation, August

Previous: 3.2%
Forecast: 3.4%

With gas prices rising, we are forecasting headline inflation to increase for a second month in a row. However, we also expect to see a decline in core inflation from 4.7% to 4.5%, which should reassure the Fed.

Wednesday 13th September

UK GDP m-on-m, July

Previous: 0.5%
Forecast: -0.1%

The strong June GDP figure was in part due to a rebound following a May that saw an extra bank holiday. Given the growing impact of higher interest rates, we believe growth may have turned slightly negative in July.

Thursday 14th September

ECB Rate Decision, September

Previous: 4.25%
Forecast: 4.25%

The ECB finds itself caught between evidence that key Eurozone economies are struggling to grow, and inflation remaining unchanged in August. We suspect the vote will favour no change, but the decision is on a knife edge.

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