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The week ahead 20 February 2023 - The property correction slows abruptly

20 February 2023

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

MSCI released its UK Monthly Index figures last week, which made for surprising reading in a moderately good way. The fall in capital growth for all property slowed from -3.7% in December to -0.7% in January, marking the third month in a row when the rate of decline has decelerated, having peaked at -6.9% in October. We had expected a bigger fall for January, although the caveat must be added that this is just one month’s figures, and the February index might show January was a blip. That said, we have seen a faster repricing this time around compared to all other property market downturns since the MSCI index began in 1986, so it is possible the worst of the correction has now occurred, which will draw the attention of opportunist investors. Our blog on the January figures can be found here.

Last Friday saw the ONS publish retail sales data for January 2023, reporting volumes grew by 0.5% month-on-month in January beating analysts’ expectations of a -0.3% decline. However, compared to January 2022 sales volumes fell by -5.3%. The decline in the share of online sales continued, and now accounts for 25.0% of total retail sales, down from 25.7% in December. The ONS reported some sectors were seeing significant discounting, which is probably due to the huge amount of inventory many retailers are reportedly struggling to offload. The outlook for the sector remains challenging, with Paperchase and M&Co amongst the first casualties of 2023, and it's likely there will be further administrations as the cost of living crisis continues to impact consumer spending.

This week sees ‘flash’ PMI figures for the major global economies, including the UK. The convention of the index is a reading of below 50 suggests private sector firms are seeing activity contract, and the UK composite index has been below that level for six months now. We believe that lower inflation and improving supply chains should move the index closer to 50. However, we also view a return to growth as being at least a few months away. While there has been better-than-expected economic data lately, we are forecasting the UK to be in recession in the first half of this year, perhaps longer.

Things to watch for this week

Tuesday 21st February

UK ‘flash’ Composite PMI, February

Previous: 48.5
Forecast: 48.9

Weaker services sector data pulled down the index in January, however the recent fall in inflation and improved supply chains will in our opinion result in a higher figure for February.

Euro Area ZEW Economic Sentiment Index, February

Previous: 16.7
Forecast: 18.5

The index returned to growth last month, and recent better-than-expected data from across the Euro Area suggests another increase will be recorded in February.

Friday 24th February

GfK German Consumer Confidence, February

Previous: -33.9
Forecast: -31.0

Consumer confidence has been steadily improving in recent months, and we believe recent disinflation will continue that trend.

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