INVBRIEF Property investment market Summer 2018
International Property Consultants
INVBRIEF Property investment market
CPI Inflation May 2018 (ONS)
GDP Growth Q1 2018 (ONS)
ECONOMY Recent economic data has been rather a mixed bag with some poor figures from indicators in the industrial and construction sectors being offset by positive figures in the form of low unemployment and improving retail spending. Unemployment remained at a historic low of 4.2% in April as the number of workers was 440,000 higher than a year earlier at 32.4m. Employment in the 16 – 64 age category now stands at a record 75.6%. Pay growth is also rising at above inflation rates with regular earnings growth reported in May standing at 2.9% as upwards pay pressure continues to gain momentum. Despite the impressive employment figures, GDP growth remained stubbornly sluggish with reported growth over Q1 2018 of 0.2%. Retail experienced a particularly tough trading quarter in Q1 with the “Beast from the East” blamed for a 1.2% fall in sales in March. The April figures reported a rebound which suggests the overall Q2 period will show a marked improvement. The mixed economic data led to the Monetary Policy Committee (MPC) holding interest rates at 0.5% in May and again in June despite the positive messages that Mark Carney, the governor of the Bank of England, was spreading earlier in the year; when a May interest rate rise looked to be a near certainty. The accompanying notes to the MPC’s June meeting suggest that rates are now likely to rise in August albeit there was a more cautionary tone in the language used than previously. The impact of the delays to interest rates rises has been felt in the currency markets as sterling has fallen against other major currencies since the beginning of April. The tough retail trading conditions in recent times have seen a number of well‑established high street retailers restructuring their operations and in some instances ceasing to trade. The shift in consumer spending patterns towards online continues and the impact of this continues to be felt by traditional retailers who have been slow to adapt. The continued weak currency environment has also not been helpful as margins have come under sustained pressure.
Page 2 Summer 2018
The retail picture has however improved recently with consecutive month-on-month sales volume growth of 1.6% in April and 1.3% in May according to the Office for National Statistics (ONS), possibly buoyed by the good weather and the royal wedding feel-good factor. UK consumer borrowing recovered in April with £1.8bn borrowed according to the Bank of England, taking the 12 month growth rate in consumer lending to 8.8%. This followed a significant slowdown in March when the consumer debt only rose by £400m. Consumer debt represents a key risk to the financial security of some households, particularly if interest rates rise as anticipated. CPI remained at 2.4% for the third consecutive month in May which was down from a six year high of 3.2% in November 2017. This was despite the impact of escalating petrol prices which increased by an extraordinary 3.8% in May, the highest monthly increase since January 2011. The inflationary pressure of higher fuel costs on consumer prices is being offset by the inflation which followed the fall in sterling dropping out of the 12 month figures. The resulting opposing inflationary pressures mean that the direction of CPI is difficult to predict in the short term. Brexit uncertainty remains a key factor in business decision-making with seemingly little progress being made over the last quarter in the ongoing negotiations. Mark Carney commented in front of the Treasury select committee that Brexit is costing average households at least £900 per year and the economy is already £40bn smaller than it could be as a consequence of the Brexit vote. Carney attributed the poor performance to businesses holding back from making investment decision