The week ahead 19 August 2024 - UK economy established in a new cycle
What to watch out for in the UK economy and property market this week.
The latest UK inflation, employment and GDP figures painted an encouraging picture on the state of the economy, which bodes well for both property leasing and investment markets in the coming months. CPI inflation increased from 2.0% in June to 2.2% in July, but encouragingly core inflation declined from 3.5% to 3.3%, while services inflation dropped from 5.7% to 5.2%. The Bank of England has been closely monitoring services inflation. Meanwhile, GDP growth for Q2 came in at an impressive 0.6%, compared to 0.7% for Q1. Growth was driven by the scientific research, professional and tech sectors. Also, the UK unemployment rate fell from 4.4% in May to 4.2% in June. While austerity measures are expected in the Chancellor’s autumn budget, we feel the economy is now established in a new cycle where growth from commercial firms will more than outweigh retrenchment in the public sector.
The global oil market might in Q4 of this year see supply exceed demand if current plans for OPEC+ to increase output go ahead, according to the International Energy Agency. OPEC+ consists of the twelve OPEC countries, plus eleven associated nations including Russia and Mexico. At present, a busy U.S. summer driving season is causing demand to outpace supply, which is supporting the oil price. However, OPEC+ plan to up production by over 500,000 barrels per day from October. This could reduce energy prices globally for both households and firms, thus easing inflationary pressures and strengthening the case for lower interest rates. This will be good news across real estate, but industrial and logistics could benefit the most, as fuel is a big operating cost for many tenants in those sectors.
This week sees the release of the early ‘flash’ PMI figures for most major economies. The PMI index is based on a survey of businesses on trading conditions, where the responses are compiled into a score whose convention is a reading of over 50 indicates growing output. For the UK, given recent signs of robust growth in the economy, we are predicting a reading well above 50 for July. Also, the US Federal Reserve will hold their annual conference at Jackson Hole in Wyoming this week, and senior figures from central banks around the world will attend and speak. The financial markets will be monitoring the speeches for clues on the outlook for interest rates.
Things to watch for this week
Thursday, August 22nd
‘Flash’ UK Composite PMI Index, August
Previous: 52.8
Forecast: 52.8
This business activity index has seen strong readings for the UK for several months now. We are forecasting the index to remain stable, given there appears to be robust growth occurring in the commercial side of the economy.
Euro Area Consumer Confidence, August
Previous: -13
Forecast: -12
With inflation firmly established below the 3% mark, but growth slowing, we are only expecting a marginal improvement in consumer confidence in the Eurozone.
