The Bank of England’s decision to hold interest rates at 5.25% provides further encouragement that the peak in property yields is on the horizon, but as the labour market continues to loosen and business activity falls, there remains plenty of room for caution.
- Recent GDP and PMI data are consistent with a downturn, raising the risk that the UK economy may be heading into recession.
- However, this will also reassure the Bank of England (BOE) that monetary policy tightening is working, with the latest labour market and inflation data providing further comfort that inflationary pressures are easing.
- Real estate investment market turnover remains limited and capital values continue to decline, but investor sentiment has received a welcome boost from recent key transaction evidence in the BOE’s recent decision to pause rate hikes.
- Investors will now watch for triggers of the rate cuts needed to meaningfully kickstart activity, but careful stock selection will remain essential to guard against income risk as occupiers continues to react to monetary tightening.
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