I have had to pull my thoughts on the economy together this week as I took the podium at yesterday’s ‘First of the Month’. For those not in the know, this is an hour’s slot where our business teams run through the UK property markets, providing their up-to-the-hour view on rents and yields.
For me, three economic questions beg to be tackled as the property market heads into end-year:
1. Whose GDP forecasts for 2011 will be proven correct?
2. Will the Bank of England allow inflation to continue to run above target?
3. Is there a shift in the balance of UK employment towards flexible working?
First up, GDP: the spread of forecasts for 2011 is large, from below 2% (the bears) to c.3% (the Bank of England). This hints at a lot of confusion, perhaps unsurprisingly as there are significant unanswered questions; how will the economy re-balance from private and public consumption to exports and private investment? The latest ECB bank survey suggests the UK is one of the freer lending environments in the EU – will this help significantly? Will austerity measures across Europe shut down the UK’s largest export market? Germany’s rallying figures and the UK’s recent improving trade deficit, may suggest not, yet it is still early days.
Inflation, says the central Bank, will now remain above the 2% target and we expect that the Bank of England will allow it to run; to turn on the interest rates tap could have massive dampening effects on our vulnerable economy. So, if lending liquidity is indeed improving (as some recent deals would suggest) and interest rates remain low, we could be set for a period of competitive debt pricing – something that will cheer those looking to re-finance!
Finally, the latest ONS data points to increased part-time hiring as both employers and employees seek alternative ways to stay off the unemployment figures. Ultimately, although I don’t believe the UK is set to become a country dominated by flexible workers, an element of flexibility is likely to be carried through as the UK stabilises and again grows. If I am right, questions around home-working, accessibility nodes for workers and smaller, more flexible space should be pushing to the forefront of CRE decisions now.