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The week ahead 27 February 2023 - A surprise on the upside

27 February 2023

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

Analysts found themselves wrongfooted last week when the latest PMI indices for several major global economies came in well above expectations. The UK index read at 53.3 compared to a consensus forecast of 49.2; Germany stood at 51.1 versus forecasts 50.4, and the US at 50.2 against expectations of 47.5. The convention of the index is that a reading of below 50 suggests contraction, so it was encouraging to see the US and UK report figures in expansionary territory when the opposite was expected. That said, Friday saw Germany’s Q4 2022 GDP figure revised downwards from 0.2% growth to a -0.4% decline. There remains a significant possibility that the UK’s Q4 GDP growth figure of 0.0% could similarly turn into a negative figure at revision in March.

The German GDP data is a reminder that, while it is encouraging things are not as bad as previously feared, the big picture is the global economy is in a downturn, and that is being reflected in the property market. Moreover, there remains an element of the ‘good news is the bad news’, particularly when it comes to interest rates. A few weeks ago, there was a view that UK rates had peaked, but when the economy shows unanticipated resilience the debate reawakens on another hike. Afterall, nominal pay growth is nearly 6%, which the Bank of England almost certainly views as too high. For property, the better news has sparked debate on how far we are from values starting to level out. We believe that there is more reason to have confidence in a second half recovery for capital values, but at the moment the investment market remains in the later stages of a downturn.

This week sees Nationwide publish its house price index, which on a month-on-month basis has been falling for several months now. We expect the February figures to show the index has turned negative on a year-on-year comparison, confirming that the housing market is now clearly established in a downturn, but not a crash. Given the impact of the rapid rise in interest rates has only partially filtered through, further price falls are likely in the coming months.

Things to watch for this week

Wednesday 1st March

Germany unemployment rate, February

Previous: 5.5%
Forecast: 5.6%

The German unemployment rate has been unchanged at 5.5% for several months now. However, we feel that slowing growth and higher costs are likely to result in a small rise in the unemployment rate.

Thursday 2nd March

Nationwide House Price Index, February

Previous: 1.1% y-on-y
Forecast: -0.5%

Given the rapid increase in interest rates in the last year, and the ongoing squeeze on consumer incomes, we see house prices sliding further in the February data.

Euro Area Inflation Rate, February

Previous: 8.6%
Forecast: 8.3%

Another fall in the headline inflation rate is widely expected, as energy prices fall. However, the ECB, which remains hawkish, will be closely watching the core inflation figure.

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