The week ahead 06 May 2025 - US economy contracted in Q1
What to watch out for in the UK economy and property market this week.
The latest data showed US GDP shrank in Q1 by -0.3% on an annualised basis, down from 2.4% in the previous quarter. While a slowdown was anticipated, analysts had expected at least marginal growth –the consensus forecast was for an expansion of 0.3%. The main cause of the decline was a widening of the trade deficit as firms rush ordered goods from abroad to pre-empt the imposition of higher tariffs in April.
Separately, a widely quoted US consumer sentiment index compiled by the University of Michigan fell from 57.0 in March to 52.2 in April. As recently as December 2024 the index stood at 74.0, pointing to a rapid deterioration this year. Government figures also showed the number of job openings in America had declined from 7.5 million in February to 7.2 million in March.
Last week also saw an attempt in the US Senate to block some of the new tariffs which was only narrowly defeated. The move to overturn President Trump’s executive order on trade received support from some Republican Senators, which suggests political unity is starting to fray. November next year sees mid-term elections in which roughly one third of Senate seats and the whole of the House of Representatives will be contested. Political pressure appears to be building on the Trump administration to find a compromise position on tariffs as concerns over the impact on the economy and the cost of living grow.
Last week also saw Q1 GDP figures published for the Eurozone, reporting a q-on-q increase of 0.4%, which was double the consensus forecast of 0.2%. The numbers were buoyed by France and Germany returning to growth in Q1 (by 0.1% and 0.2% respectively). Both economies had contracted in the previous quarter. Of the larger Eurozone nations, Spain saw the strongest expansion; up by 0.6%. Nevertheless, the USA is a large export market for the Euro Area nations, and we expect to see growth slow in the Q2 figures due to the new tariffs.
This week’s big UK economic news story will be the Bank of England interest rate decision on Thursday. Recent survey evidence, particularly the PMI business activity index and the GfK consumer confidence survey, point to a deterioration for the UK economy in April. Meanwhile, inflation slowed in both the February and March data. Consequently, we are predicting the Bank of England will continue its pivot towards supporting growth with another 25 bps cut for the Base Rate. We are forecasting further reductions of 50 bps later in the year.
The US Federal Reserve will also hold its policy meeting this week. We believe that due to the inflationary risks arising from the new tariffs, the Fed Funds Rate will see no change at this meeting.
Investment Focus – Central London Offices
Central London saw £2.5bn of investment volumes in the first quarter of 2025. Encouragingly, this is 46% up on Q4 2024. Whilst still 13% below the 10-year quarterly average, Q1 2025 levels are the highest since Q2 2022. Volumes were bolstered by two >£300m portfolio transactions by NorgesBank IM, the largest of which saw Norgesacquire a 25% share of Shaftesbury’s Covent Garden Estate for £570m. As a result, European investors dominated, accounting for 70% of Q1 transactions. Momentum continues to build with the number of purchasers also increasing -Q1 saw 37, the highest number since Q1 2022. Whilst geopolitical and economic uncertainty remains elevated, Central London’s robust occupier market and strong rental growth prospects underpin the case for increased investor confidence in 2025.
This week's figures
WEDNESDAY 7 May
US Federal Reserve Interest Rate Decision, May
4.25% - 4.50% previous
4.25% - 4.50% forecast
The new tariffs put the Federal Reserve in difficult position, as growth has slowed but the duties will also push up prices. Overall, we think the Fed rate setters will leave the Funds Rate unchanged for now while they monitor the data.
THURSDAY 8 May
Bank of England Base Rate Decision, May
4.50% previous
4.25% forecast
With inflation decelerating and the UK economy in a slowdown, we are forecasting a 25 bps cut to the Base Rate at Thursday’s policy meeting.
FRIDAY 9 May
UK Industrial Production, m-on-m, March
1.5% previous
0.5% forecast
Survey evidence points to weak conditions for the sector, although there have been reports of US firms rush ordering goods from abroad in March. We are forecasting an increase in output for March, but by less than the February figure.
