Your Leading Indicators | Interest Rates | UK Labour Market | CRE Lending
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
Is the end of the tightening cycle near?
Due to warmer than expected weather and strong accumulation of gas reserves, UK natural gas prices have moderated back below levels seen pre-Russia/Ukraine conflict, with futures currently at 170p per therm, down from a peak of 640p in August 2022. As a result, economists expect inflation to be less pronounced than previously anticipated. Capital Economics forecast UK inflation to be 0.3ppts lower than originally forecast, at 3.8% in 2023 and 0.5ppts lower in 2024 at 2.7%. While Oxford Economics also forecasts UK inflation to slow, it expects inflation to remain above 4% in 2023. Both Capital Economics and Oxford Economics forecast inflation to reach the Bank of England’s 2.0% target by 2024. Overall, economists expect the Bank of England to be close to the end of its tightening cycle, albeit reluctant to cut rates this year unless the anticipated recession is deeper than currently expected.
UK labour market showing signs of softening
In the three months to October, the UK unemployment rate increased by 0.1ppts over the quarter to 3.7%. While this remains close to 50 year lows, the UK labour market is showing signs of softening. In the three months to November, the number of job vacancies fell for the sixth consecutive quarter to 1.2 million. Meanwhile, the latest UK PMIs suggest a drop in headcounts as businesses adjust to a decline in new orders. While the OBR forecasts UK unemployment to peak at 4.9% in Q4 2024, this is below the 6.8% long term average and the 7.9% GFC peak. Despite the slightly softer labour market outlook, leasing demand in the office sector remains relatively healthy. For example, in London, preliminary figures for 2022 Q4 outline almost 3 million sq ft of new office leases agreed, just below trend levels of 3.1 million sq ft. With a further 2.8 million sq ft of deals currently under offer, this points to a continuation of transaction activity across London in 2023.
Strongest level of lending to UK CRE since December 2021
Net lending to commercial property increased for the third consecutive month in November 2022 at just over £1.0bn, the strongest rise in commercial property lending since December 2021. However, affordability challenges are anticipated this year for UK investors, due the elevated all in cost of debt. Higher debt costs may lead to opportunities for equity injection / partnering as well as assets being bought to the market for sale, should investors choose not to refinance. The current lending arena is different to the GFC, with a broad range of bank and non-bank lenders providing a depth of liquidity that didn’t exist in 2008 / 09. While non-bank lenders are relatively untested through more challenging conditions, capital remains waiting in the wings to deploy through non-bank lending over 2023.
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