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The week ahead 20 November 2023 - Relief at the Bank of England as inflation falls

The Week Ahead 20 November 2023

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

The Bank of England’s decision to hold the base rate unchanged earlier this month was vindicated last week when the latest data showed inflation fell in October. The headline inflation rate declined from 6.7% in September to 4.6% in October, while core inflation (which excludes volatile items, like fuel and food) edged down from 6.1% to 5.7% over the same period. The softer decline for core inflation will probably strengthen the Bank’s determination to hold interest rates at the current level for some time before contemplating cuts. The latest labour market figures would also have been welcomed in Threadneedle Street, as it showed pay growth in nominal terms slowed from 7.9% in August to 7.7% in September. This proves that inflationary pressures are being successfully reduced, albeit at the cost of bringing growth to a halt.

So, the economy is likely to remain weak in the coming months, which will filter through to the property market in the form of subdued demand in the leasing market, and probably more second-hand space being released for subletting. In the investment market, the latest UK MSCI Monthly Index figures made for sobering reading, as the capital value index fell by -0.7% month-on-month in October, which is similar to the contraction seen in September. The industrial sector, which in recent months has seen a modest rise in values, saw a marginal decline of -0.1%. Offices remains the worst performing of the major sectors, with values falling by -2.0%. Overall, the figures point to a market that is falling at a much slower pace than this time a year ago, but a turning point for values is still several months away.

This week sees the Chancellor deliver his Autumn Statement to Parliament, and by the time this note is published there will probably have been much leaked information in the weekend newspapers. At the time of writing there has been speculation that the slightly better than expected economic news, plus interest rates now appearing to have reached a peak, may provide some leeway for either small tax cuts or increased spending.

Things to watch for this week

Tuesday, November 21st

US Existing Home Sales, m-on-m, October

Previous: -2.0%
Forecast: -1.3%

Existing home sales in the US have declined on a month-on-month basis in ten out of the last twelve months, as rising interest rates and fewer homes being put up for sale has weighed on the market. We are predicting another fall for October as the housing market continues to slow.

Thursday, November 23rd

Composite UK ‘Flash’ PMI, November

Previous: 48.7
Forecast: 49.0

The convention of this business activity index is that a reading of under 50 suggests the commercial side of the economy is contracting. Given higher interest rates are clearly weighing on demand in the economy, our forecast is for the index to remain below the 50 mark.

Composite Euro Area ‘Flash’ PMI, November

Previous: 46.5
Forecast: 46.8

We are expecting the Euro Area index to improve modestly, but to a level that remains below the pivotal 50 level.

Friday, November 24th

GfK UK Consumer Confidence, November

Previous: -30
Forecast: -29

The squeeze on UK household incomes is continuing as higher interest rates push up debt repayments, so we are forecasting another downbeat reading for consumer confidence.

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