Although we see a recessionary outcome as a possibility, we do not think it is an inevitability.
However, markets expect further interest rate rises, with significant implications for the cost of finance and real estate pricing.
- With inflation unlikely to return to the 2.0% target until 2024, we expect a further 125bps increase in the policy rate, taking interest rates to 2.50% by the end of 2023.
- However, we do not envisage a protracted slowdown, thanks to the resilient labour market, elevated saving rate and ongoing fiscal support to vulnerable households.
- Real estate investors are looking for clear signs of a slowdown. While half-year volume was healthy, anecdotal evidence of price chips and paused marketing campaigns suggests outward yield movements are inevitable.
- US financial markets may offer a hint of things to come, with transaction yields for office and industrial assets already repricing c. 25-50 bps.
Click to read UK Economic & Real Estate Briefing - June 2022