- The Office for National Statistics (ONS) has revised its GDP estimates, showing that the UK economy grew by 4.8% in 2022 and 0.3% in 2023, up from previous estimates. These revisions confirm a stronger recovery from the pandemic than initially thought, with performance comparable to France and surpassing Germany.
- The labour market remains resilient, with unemployment at 4.1% as of October 2024. However, job gains have slowed, averaging 104,000 per month over the past three months, and nominal wage growth has moderated.
- Inflation continues to be a key focus. The Consumer Prices Index (CPI) rose by 1.7% in the 12 months to September 2024, down from 2.2% in August. This marks a significant decline from the peak of 11.1% in October 2022, bringing inflation closer to the Bank of England's 2% target.
In response to these economic factors, the Bank of England's Monetary Policy Committee (MPC) voted to reduce the Bank Rate in November by 0.25 percentage points to 4.75%. This decision reflects a careful balance between progress in disinflation and ongoing economic uncertainties.
The Autumn Budget 2024 delivered a significant increase in public spending, taxation, and government borrowing – all expected to contribute to inflation. Budget policies increase spending by almost £70 billion each year for the next five years, with half funded through increased taxes and half through increased borrowing, with the consequences of this expanded appetite for debt still being digested by Bond markets.
“On the global stage, the re-election of Donald Trump as US president in November 2024 sent shockwaves through international markets.”
On the global stage, the re-election of Donald Trump as US president in November 2024 sent shockwaves through international markets. In Europe, Germany plunged into political crisis as Chancellor Olaf Scholz's coalition government collapsed, leaving Europe's largest economy under a caretaker administration.
The European Central Bank (ECB) has taken steps to address economic challenges, lowering key interest rates and reducing asset purchase programmes. The ECB noted that the disinflationary process on the continent is well underway, with annual inflation falling to 1.7% in September 2024.
In the United States, the economy has continued to expand at a solid pace, with GDP growing at an annual rate of 2.8% in Q3 2024. The Federal Reserve has begun a cautious easing cycle, lowering the federal funds rate to 4.5-4.75% in November.
Looking ahead, the UK faces several challenges. The impact of the Autumn Budget 2024 and global economic developments will be critical factors in determining the future direction of monetary policy and economic growth. The interplay between domestic economic factors, global developments, and policy measures will be crucial in shaping the UK's economic trajectory.
SEB SAYS: "While progress has been made in taming inflation, it’s clear that not only will the next few months see the underlying CPI rate increase back over the 2% target, it will now likely remain higher in the medium-to long term thanks to the Budget.
It therefore remains a frustrating time for UK real estate in a year characterised by actors in the market taking two steps forward, one step back.
Momentum & optimism had been building throughout the summer given the prospect of a succession of rate cuts & cheaper debt, a more stable political environment and an economy that seemed to be weathering the storms of the past few years surprisingly well.
Yet November has now delivered renewed uncertainty, with two big, new variables for investors to ponder:
- a Republican clean sweep of the Senate, House and Presidential elections, the scale of which caught mainstream commentators off-guard; and
- the prospect of a widening monetary policy gulf between Britain and both the USA and EU, thanks in part to the Bank of England’s novel approach to QT, looser Government fiscal policy, increased appetite for public sector debt and stubbornly persistent domestic price pressures.
At the same time as these macro issues are emerging, the residential sector has more practical issues, and costs, to come in the shape of: Renters Rights reforms, ground rent and possible wholesale tenure reform, stamp duty threshold changes, the roll-out of other new taxes targeting higher value properties & their owners and a highly ambitious set of supply-side housing policies."