Leading Indicators | Navigating 2024: why optimism is growing
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics.
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2024: WEAKER GROWTH, SOFTER INFLATION
The UK is expected to avoid a recession next year, but the outlook continues to be soft. The OBR forecasts +0.7% GDP growth in 2024, while the consensus forecast is slightly less positive, anticipating +0.4% growth.
However, one view is that the inflation story will be less dramatic next year. The OBR expects inflation to fall to 2.8% by Q4 2024. The inflation rate is not expected to return to the 2.0% target until Q2 2028.
With a lower inflationary environment, markets expect the Bank of England (BoE) to start cutting its interest rate in 2024. However, the question remains about when it will do this, and by how much. Currently, money markets expect three 25bps rate cuts from the BoE next year, the first as early as June. One month ago, money markets were only pricing in two rate cuts in 2024.
CRE INVESTMENT: SEARCHING FOR THE TURNING POINT
With global and UK CRE investment volumes nearly halving y/y in 2023 YTD, we are expecting investment to at least slightly improve next year, for three key reasons.
Firstly, interest rates and market rates are forecast to come down by H2 2024, which will mean a more favourable CRE lending and investing environment. Additionally, economists are anticipating further compression in the risk-free rate next year, from 3.99% currently (its lowest level since May) to 3.50% by the end of the year. This should also help create a more attractive CRE investment market in 2024.
With lenders being less lenient on non-performing loans, we are also likely to see more assets come to market next year, further improving investment volumes. Lastly, there is a growing sense that the current window of opportunity to buy at significant discounts is finite.
BUILT ENVIRONMENT CENTRE STAGE AT COP 28
At COP 28, 27 countries, including the UK, US, and China, pledged their commitment to the ‘Buildings Breakthrough’ initiative. The initiative aims to make ‘near-zero and resilient buildings’ the new normal by 2030, ambitious given that buildings account for c.40% of global energy-related CO2 emissions. The UKGBC estimates that UK carbon emissions from the built environment fell by 13% between 2018 and 2022, missing the 19% required to meet the UK’s net zero pathway. During 2020 alone, actual emissions reduced by -9%. Overall, the shortfall represents 11 MtCO2e of carbon emissions, equivalent to the annual polluting output of 6.5 million cars.
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