The week ahead 05 August 2024 - UK interest rates move into a new cycle
What to watch out for in the UK economy and property market this week.
The Bank of England last week cut the Base Rate by 25 bps to 5.00%, and thus joined the club of central banks who have now moved into a new cycle for interest rates, alongside the Bank of Canada, the ECB and the Swiss National Bank. While the US Federal Reserve opted to leave interest rates on hold for another month, there were hints that they are considering a cut in September. The global economy appears to be moving into a protracted period of monetary policy loosening, which should improve the outlook for real estate yields. One rate cut alone will not transform the UK property market, but momentum will build as more cuts occur, particularly for the industrial and retail warehouse markets, where recent MSCI data points to tentative signs of recovery for values. Our full analysis of the Bank of England rate cut can be found here.
Almost drowned out by coverage of the rate cut was news the UK Nationwide House Price Index grew by 2.1% in July, beating City forecasts of 1.8%. As a consequence, several major lenders cut mortgage rates last week. The Nationwide index has now risen on an annual basis for six consecutive months, although month-on-month growth did briefly turn negative in March and April. Affordability and supply bottlenecks remain problems, however the new government is giving a high priority to house building. We believe interest in change of use will increase in the coming years, as landlords move to redevelop obsolete office and retail assets as residential or mixed-use schemes.
This week sees retail sales figures released for both the UK and the Eurozone. Both have seen improving consumer confidence data for some time, although high interest rates continue to weigh on the spending power of households. For the UK, heavy rainfall in early July but better weather as the month progressed, make calling the growth rate for retail sales difficult. We believe that strengthening consumer confidence will emerge as the stronger pressure, so are predicting retail sales growth for both the UK and the Eurozone.
Things to watch for this week
Tuesday, August 6th
BRC UK Retail Sales, y-on-y, July
Previous: -0.5%
Forecast: 1.0%
June was a disappointing month for retail sales in part due to bad weather. This makes July a difficult call as the month began with heavy rain, but then weather improved markedly. We are predicting a return to growth.
Euro Area Retail Sales, m-on-m, June
Previous: 0.1%
Forecast: 0.2%
Consumer confidence in the Eurozone has been gradually strengthening, so we are forecasting continued growth for retail sales in the June figures.
