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The week ahead 24 April 2023 - Commercial property values rose slightly in March

24 April 2023

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

UK inflation fell in March, but by less than expected. At 10.1%, the UK is now an outlier in comparison with other major economies, given inflation is at 5.0% for the USA, 6.9% in the Euro Area and 4.3% in Canada. Moreover, UK labour market data showed that the eleven base rate hikes since November 2021 have only brought about a marginal slowing in the jobs market, leaving nominal wage growth high at 5.9%. Add on the upbeat PMI data for the UK, which pointed to an acceleration in business activity this month, and the chances are growing that the Bank of England will hike the base rate again at the next policy meeting in May; in our view by 25 bps. Similarly strong PMI data for the Eurozone has increased the likelihood of a rate rise of 25-50 bps from the ECB next month.

On a more upbeat note, the latest MSCI (IPD) UK commercial property monthly index for March reported a surprise return to growth for capital values, up a marginal 0.2% month-on-month. The strongest growth for the three main sectors was for retail (0.7%), although that was entirely driven by retail warehouses. Industrial also recorded growth (0.6%) but offices continued to decline (-0.9%). A return to growth for values at the ‘all property’ level will be a welcome boost for market sentiment, although it is doubtful this marks a turning point in the cycle. We expect to see growth alternating between marginally negative and slightly positive in the next few months, before moving into a genuine recovery in the second half of the year. Our full analysis of the March MSCI figures can be found here.

This week sees GDP figures from the Euro Area, Germany and the USA. For each economy we expect to see some growth, thanks to easing supply chain bottlenecks and lower energy costs. Nevertheless, the brake effect from higher interest rates will probably result in a subdued rate of growth. In the UK, Nationwide will release their house price index and we are forecasting a further decline in the face of higher interest rates and the on-going squeeze for household incomes. Nevertheless, the month-on-month pace of decline has slowed lately, perhaps suggesting the majority of the price correction has now occurred.

Things to watch for this week

Wednesday 26th April

Germany GDP, Q1 2023

Previous: -0.4% q-on-q
Forecast: 0.2%

Reduced supply chain problems and falling energy costs should lift GDP growth back into positive territory in Q1, but at a modest pace due to high interest rates.

Thursday 27th April

US GDP, Q1 2023

Previous: 2.6% (Annualised)
Forecast: 2.0%

With higher interest rates exerting downwards pressure on the economy, we are predicting annualised US GDP growth slow to around 2.0% in Q1.

Friday 28th April

Nationwide UK House Price Index, April

Previous: -3.1% y-on-y
Forecast: -4.0%

Higher mortgage rates and the cost of living crisis have resulted in a fall in house prices, and we expect a negative figure for April. However, on the month-on-month comparison we are forecasting the rate of decline to slow.

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