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Despite today’s big reaction in markets in the UK to better-than-expected inflation news , we still think investors are overestimating the peak in interest rates there and underestimating how much monetary policy will be eased in 2024 and beyond. Indeed, …
19th July 2023
We have made only minor changes to our latest global forecasts which still imply that property will underperform other assets in the short to medium term. Further out real estate returns are set to recover, but, with yield spreads more compressed than in …
Lower energy prices and the reinstatement of the EU’s fiscal rules will contribute to lower budget deficits in the euro-zone next year. Together with tighter monetary policy, this will help to dampen inflationary pressures and to reduce GDP growth. Over …
The lower-than-expected CPI inflation data for June probably signals the end of the upward march in mortgage rates. But mortgage rates are likely to plateau rather than fall as the Bank of England keeps interest rates high until next summer and lenders …
Despite the softer tone of the CPI inflation data for June released earlier today, we have raised our forecast for the peak in Bank Rate. Rather than rise from 5.00% currently to a peak of 5.25%, we now think Bank Rate will peak at 5.50%. That’s a bit …
The latest data suggest that the euro-zone remained in recession in Q2. We think that the economy will continue to contract in the second half of the year as the impact of tighter monetary policy feeds through. Construction data for May were published …
Mortgage rates have risen to a level that could cause costs on a fifth of rental homes to exceed the rent. That is likely to lead to a significant number of forced rental property sales, which will undermine the tight supply conditions that have limited …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Splitting real GDP growth into the sectors most and least sensitive to …
18th July 2023
Swiss inflation has fallen sharply this year to below 2% and we expect it to stay there for the foreseeable future. In contrast to the SNB’s view, we think second-round effects on wages will be quite limited. And as a result, we forecast the SNB to start …
Out of town retail has been among the hardest hit commercial sectors since 2020, but with considerable variation among subsectors. While a weak consumer backdrop will drag on near term rent growth across the board, further out we expect this variation to …
17th July 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Rising interest rates have led lenders to rein in the supply of credit to …
13th July 2023
Lenders expect narrow spreads to keep upward pressure on mortgage rates The narrowing in interest margins reported by mortgage lenders in the Credit Conditions Survey suggests that mortgage rates won’t fall significantly anytime soon. Meanwhile, it became …
Demand falls at fastest rate since last October As we expected, the rise in the average quoted mortgage rate from 4.4% in May to 5.1% in June caused agreed sales and new buyer enquiries to slump. The deterioration in market conditions has left surveyors …
The upcoming election in Spain may result in a change of government, but it is unlikely to change the country’s short-term economic fortunes. Low inflation and a rebound in tourism will help GDP growth in Spain to outperform the rest of the euro-zone this …
11th July 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19th July . Register here to join that 20-minute online briefing. To the extent that economic conditions influence general elections, and of …
We think that the huge expansion of the Italian construction sector over the past two years has run its course, as the reduction in construction subsidies and tighter financial conditions will reduce demand and output. That said, the high backlog of work …
After a lacklustre 2022, the Brussels prime office market has had a brighter start to 2023, as rent growth accelerated while it slowed elsewhere in the euro-zone. But with a cooling jobs market set to weigh on net absorption and tight supply due to give …
10th July 2023
There are circumstances in which the Bundesbank’s losses over the next few years could require it to be recapitalised by the German government. However, we think these are unlikely to occur and the Bundesbank will be able to “carry forward” losses and …
The shift to fixed mortgage rates and the rise in the number of homes owned outright means that while some borrowers face a sharp rise in mortgage payments other homeowners will sit out this interest rate cycle entirely. The most vulnerable group is …
6th July 2023
The pandemic-induced shift towards homeworking caused a sharp fall in physical office occupancy rates. They have since recovered significantly but remain below pre-pandemic levels. And while lower physical office occupancy will feed through to weaker …
The long NHS waiting lists may be one reason why some people are unable to work and may therefore be contributing to inflation being higher in the UK than in other major economies. As the NHS waiting list is unlikely to shorten soon, we think that …
5th July 2023
Corporate credit spreads have fallen back in the US over the past couple of weeks, while they have risen in the euro-zone and the UK. However, given our pessimistic view of the US economy, we suspect that the divergence will end before long, with US …
In the 1980s Europe responded to competition from Japanese auto producers with protectionist policies known as Voluntary Export Restraints (VERs). We think its response to competition from China in the 2020s will be different and less effective, …
3rd July 2023
The effects of tighter monetary policy are very clear in the money and credit data, reinforcing our view that the euro-zone economy will underperform the ECB and consensus forecasts. Data released this morning show that savers continue to tie up their …
28th June 2023
The Bundesbank may make large losses in the coming years but these will be paper losses only, will have no impact on the government’s fiscal position, and are likely to fall over time. While the losses may fuel opposition to the ECB in some quarters, this …
26th June 2023
The armed uprising by Yevgeny Prigozhin’s Wagner mercenary group against the Russian military over the weekend has dealt a heavy blow to President Putin and exposed cracks in the regime. There are a lot of unknowns about how things will play out at this …
After several disruptive quarters, we are making few changes to our near-term euro-zone real estate forecasts. Nonetheless, a higher profile for 10-year rates has led us to push back yield reductions until after 2025 and we have also downgraded our office …
Swiss offices have already seen the second sharpest price correction across the major European markets. And with stretched valuations set to face renewed pressure from rising bond yields, we think office yields will edge higher and that sluggish rent …
23rd June 2023
The rapid depreciation of the Swedish krona has pushed the currency down to its lowest ever level against the euro. Worse still, we do not think the krona is significantly below “fair value”, nor do we expect the headwinds facing it to abide anytime soon. …
22nd June 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday, 19 th July . Register here to join that 20-minute online briefing. The 50 basis point (bps) interest rate rise by the Bank of England today, …
The 650bp interest rate hike by Turkey’s central bank today (to 15.0%) will underwhelm investors that wanted a faster and more aggressive monetary tightening. The currency has come under a bit of pressure since the announcement. But the communications …
Some observers have suggested that the strength of Swedish inflation in May reflected buoyant demand driven by Beyoncé’s Stockholm concerts but the Riksbank is more likely to view it as evidence that underlying price pressures are too high. We expect a …
The 25bp rate hike announced by the SNB this morning was smaller than the 50bp hike we had predicted. But the accompanying statement and upward revision to inflation forecasts for 2024 and 2025 strongly suggest that there will be at least one more hike in …
Today’s 50bp rate hike by the Norges Bank, taking its policy rate to 3.75%, was accompanied by new hawkish guidance and projections. As a result, we have revised up our already above-consensus forecast for the peak in the policy rate to 4.25%. It could …
Since bottoming out late last year, European and US equities have fared comparably in local-currency terms, and European stocks have even outperformed in dollar terms. Looking ahead, however, we think that the lack of AI (or indeed tech) “champions” in …
20th June 2023
The latest MSCI data indicate that values in western European office markets have held up better since the start of the pandemic when compared with the US and UK. But given these cities face similar long-term problems, we remain downbeat about the …
16th June 2023
How low Fed and ECB policy rates will go, when they are eventually normalised, is at least as important for financial markets as the precise timings of the ends of tightening cycles, in our view. We think both central banks will cut deeper than investors …
Although we no longer expect Gilts to outperform in local-currency terms, we do think they’re set to hold up better against Treasuries and Bunds over the rest of this year than they have done lately. Gilts have seen a renewed sell-off lately. The 10-year …
15th June 2023
The Polish government’s ambitious plans to raise defence and social spending are unlikely to be achieved without pushing up the public debt-to-GDP ratio later this decade. Imminent risks to the sustainability of the public finances still appear relatively …
13th June 2023
With less than a year and a half to go until the next general election, calls for the Chancellor, Jeremy Hunt, to cut a range of taxes have been growing. But recent economic developments mean the Chancellor is unlikely to have much fiscal firepower …
12th June 2023
Having fallen steadily for much of the last year, European natural gas prices surged last week. The catalyst was constrained supply. Given seasonally high stocks and subdued demand, we are not worried yet about another price spike. But Europe has to avoid …
While we anticipate that the ECB will deliver more rate hikes this year, we don’t think that this would trigger another leg up in long-term euro-zone government bond yields. In fact, we suspect that yields will fall a bit over the rest of 2023, partly …
8th June 2023
Refinancing risks increase The recent upward revision to our mortgage rate forecast and the fact that the majority of those that need to refinance this year are on two-year fixes means that we are now more worried about the risk posed by refinancing. …
Recent economic difficulties have forced online retail to tighten their returns policies. At face value, this seems good news for retail property as it may shift demand back to stores for certain categories. However the change is unlikely to be a big …
Normalising supply could make future drop in demand more damaging The significant improvement in the RICS survey in May echoed the pause in house price falls in the past few months. But the survey also showed an increase in supply, which could …
More than €1trn of TLTROs will be redeemed over the next eighteen months, significantly reducing euro-zone banks’ liquidity and pushing up their funding costs as they adjust their balance sheets. Banks may also increase their holdings of government bonds …
7th June 2023
A version of this report was published as an opinion piece in the Financial Times on Wednesday 7 th June Signs that newly re-elected Turkish president Erdogan is willing to move away from unorthodox economic policies has led to an increase in investor …
Many of the factors that explain the UK’s chronically weak GDP growth since the pandemic, such as the shrinking of the UK’s workforce and low export growth, won’t disappear any time soon. This explains why we expect the UK economy’s underperformance to …
6th June 2023
Early 2023 data revealed that the German industrial market has slowed considerably following the exuberance of a year ago. And looking ahead the outlook is not much brighter. We were already anticipating a significant moderation of rent growth this year …
5th June 2023
The recent decline in the number of job vacancies suggests that the upward pressure on wage growth from labour shortages is probably past its peak. But it’s still not clear that wage growth will slow fast enough to ease the Bank of England’s concerns over …
