The week ahead 07 October 2024 - Confidence grows on November Base Rate cut

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

Speculation the Bank of England might cut the Base Rate at its November meeting intensified last week following comments from Governor Andrew Bailey in a newspaper interview. The pound fell on the news. Governor Bailey said inflationary pressures have not been as persistent as had previously feared, and consequently the Bank could be “a bit more activist” on bringing down interest rates. He also endorsed the government’s plans to increase investment despite the wider fiscal pressures, stating: “The government is right to focus on how to encourage capital investment. There is a clear need for it in terms of infrastructure.” The next Bank of England interest rate announcement will be on 7th November, a week after the autumn Budget.

The downwards trajectory for interest rates continues to support the early-stage recovery we are seeing in the housing market. The Nationwide House Price Index grew by a better-than-expected 3.2% in September on a year-on-year comparison. This marked the strongest rate of annual growth since November 2022. Also, figures from the Bank of England showed mortgage approvals stood at 64,900 in August, up from 62,500 in July and ahead of a consensus forecast of 63,800. Overall, we feel the housing market has developed steady momentum and with interest rates set to fall further over the next two years, we are forecasting further growth for house prices over the medium term. This could encourage more developers to consider a change of use to residential for obsolete commercial buildings.

This week sees the release of inflation figures in the US, where evidence is mounting that price pressures are back under control. UK GDP figures for August are out on Friday. Following improved retail sales numbers and robust PMI data, we are forecasting a modest return to growth for the UK economy. Also, a number of ECB and US Federal Reserve rate setters will give speeches this week, which the financial markets will be monitoring for clues on the outlook for interest rates.

Things to watch for this week

Thursday, 10th October

US CPI Inflation, y-on-y, September

Previous: 2.5%
Forecast: 2.2%

Given the continued flow of data indicating high interest rates have slowed the labour market and the economy, we are predicting inflation to decelerate.

Friday, 11th October

UK GDP Growth, m-on-m, August

Previous: 0.0%
Forecast: 0.1%

Based on upbeat survey evidence and a return to growth for retail sales in August, we are forecasting a small rise for GDP.