The week ahead 23 June 2025 - Eyes turn to August for next rate cut
What to watch out for in the UK economy and property market this week.
As was widely expected, the Bank of England left the Base Rate unchanged at last week’s Monetary Policy Committee (MPC) meeting at 4.25%. Overseas, the US Federal Reserve also left interest rates unchanged. However, further disappointing data on the UK economy sparked discussion on whether a Base Rate reduction would come at the next MPC meeting, which is in August. ONS figures reported a worse than expected decline in retail sales volume, contracting by -2.7% in May versus growth of 1.3% in April, although the monthly figure is typically volatile. Plus, Easter landing in April would have skewed the data, and there was growth of 0.8% on the three-month comparison. Also, figures on public sector finances showed the government had to rely more on debt issuance in May, which suggests a weak economy is struggling to generate enough tax revenue.
However, there is an element of ‘the bad news is the good news’ here, as this evidence growth is stuttering increases the pressure on the Bank of England to respond with a Base Rate cut. That three of the nine MPC rate setters voted last week to cut interest rates shows there is already a view among some committee members that interest rates need to be lower. Our full analysis of the Bank of England interest rate decision can be found here.
There was some good news on the UK economy last week though, such as the improvement in the GfK consumer confidence index – rising from -20 in May to -18 in June. Also, the government rolled out its infrastructure strategy for the next 10 years, which included £725 billion of development spending on transport links, schools, hospitals, courts and flood defences. The UK economy is set to see huge fiscal stimulus in the coming years, which is why we remain confident on medium- to long-term growth prospects, with the property sector likely to see significant benefits.
This week sees the release of data on US inflation and UK car production.
Lately, the pound sterling has been strengthening against the US dollar, with concerns over the outlook for US inflation as a factor. Several of President Trump’s policies, notably tariffs and taxation, have potential to stoke inflation, which is why the Fed is resisting pressure from the White House to cut interest rates. Our forecast is for a steady rise for US inflation over the coming months.
April saw the lowest number of cars made in the UK since 1952, in part because firms deliberately slowed production due to the US tariff issue. Also, some factories were changing over to produce new models. Given US tariffs remained an area of uncertainty in May, plus the latest retail sales show consumers are avoiding large purchases, we are predicting car production remained weak in May.
Investment Focus – Industrial Property
As we approach the end of Q2, industrial big box investment volumes remain subdued. Volumes total £548 million, an increase of only 7% since we reported last month. This is also 20% lower compared to the end of Q2 last year. While the underlying fundamentals of the sector remain strong, investment activity continues to be constrained by global economic uncertainty and a limited supply of stock on the market. Equivalent yields for prime industrial warehouses moved out slightly, by 3 bps, to 5.6% on the latest MSCI quarterly index reflecting the lack of activity on the market. Our outlook for the sector remains positive, despite the slowing of activity.
This week's figures
TUESDAY 24 JUNE
Germany Ifo Business Climate Survey, June
87.5 previous
88.2 forecast
Evidence is emerging, such as the recent ZEW sentiment survey, that confidence is building on the outlook for the German economy, thanks to the new government’s plans to increase spending on infrastructure.
FRIDAY 27 JUNE
UK Car Production, May
59.2k previous
59.0k forecast
Uncertainty over access to the US market and factories switching over to new models hit the figures in April, although the retail sales figures pointed to consumers avoiding big ticket purchases in May. We are forecasting subdued production figures.
FRIDAY 27 June
US PCE Inflation, May
2.1% previous
2.2% forecast
Our view is that inflationary pressures in America will now steadily build in the coming months, as firms pass on rising business costs to consumers.
