Inflation eases: will the BoE hawks capitulate?
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
The Consumer Prices Index (CPI) rose by 3.4% in the year to February, down from 4.0% in January, the ONS said this morning. Analysts had been expecting a rise of 3.6%.
This is good news. Core CPI, which excludes volatile items like food and energy, is still running hot at 4.5%, but is now coming down nicely, having eased from 5.1%. The troublesome services CPI fell to 6.1%, from 6.5%.
The latter two numbers make it a virtual certainty that the Bank of England will opt to hold the base rate at 5.25% when it publishes its latest decision tomorrow, but it will be worth watching to see how the hawks vote. Two of the nine members wanted to hike by another 0.25 percentage points to 5.5% at February's meeting. Will they capitulate given the fact that the annual rate of inflation could dip below 2% as early as April?
Super prime sales
Last year was pivotal for global super prime housing markets. Rates continued to rise during the first six months of 2023, but wealth creation rebounded as asset prices surged on the back of an AI-fuelled equity boom. A brighter outlook for interest rates in the final quarter provided some additional momentum.
That helped push global super-prime residential sales (US$10m+) up 11% in the final three months of the year compared to the same period a year earlier, according to Knight Frank's Global Super-Prime Intelligence report. There were 411 sales during the period in the 12 markets covered by our index. The strong final quarter pushes 2023's total sales ahead of 2022 and well ahead of the 2019's pre-pandemic total, but still 22% below the 2021 peak.
The largest market in Q4 was Dubai (108 sales), followed by London and New York (with 52 each). Hong Kong volumes dipped to 15 sales, pushing it out of the top five markets for the first time. Sydney and Geneva ranked fourth and fifth, respectively, with strong activity throughout the quarter.
A thriller in Manila
The 45 markets covered by our Prime Global Cities Index also had a strong final quarter, pushing annual price growth to 3.7%. That's the strongest rate of growth since the year to Q3 2022 and is now within touching distance of the long run average.
Manila tops the rankings with a robust growth rate of 26.3%. This increase is driven by rising housing demand, with agents reporting a surge in requirements from expatriates returning to manage local businesses as the economy shows strong performance. Dubai is next with growth of 15.1%. While still in double digits, the city's rate of price appreciation has slowed noticeably after an extraordinary repricing over the past three years, during which prices rose by 182%.
However, prices fell by 6.7% in the final three months of the year, as supply increased as new-build completions began to pick up. Mumbai's impressive 10% price growth in the past 12 months mirrors a substantial expansion of the Indian economy, which grew by 8.4% in 2023. This was highlighted in The Wealth Report 2024, which pointed to a remarkable increase in wealth creation in India in 2023.
Another intervention
Housing secretary Michael Gove has ordered London Mayor Sadiq Khan to conduct a partial review of the London Plan in an attempt to boost housing delivery in the capital. He wants the Mayor's office to report back by September.
Industrial land is the focus. Michael Gove pointed out that an estimated 6,800 hectares of land are being used for industry in the capital. It believes that 736 hectares, the size of about 900 football pitches, could “potentially” be turned into housing developments.
The intervention overlooks the interconnected nature of the housing and industrial sectors, which you can read about in Knight Frank's Future Gazing report by Claire Williams. London already has the lowest level of industrial and logistics stock per dwelling of any UK region, with just 55 sq ft per dwelling. That's perhaps unsurprising given the high density of residential properties in the capital and high land values, but it's a good reason to better protect industrial land. There is already intense competition for industrial space, particularly for last-mile distribution, which has led to rapid rental growth in recent years. Average rents across Greater London have risen 46.4% in five years (to September 2023), compared with 34.2% across the UK, according to MSCI.
Sam Bensted, assistant policy director for planning and development at the BPF, tells EGi that the idea that employment uses could be relocated outside the M25 to free up land for new homes “fundamentally misunderstands how our cities work":
"Over the past 20 years, London has lost 24% of its industrial land to other uses, which is naturally restricting the development of modern warehouse space and making it harder for businesses to find the premises they need to manufacture and move goods. This will impact job creation and economic growth moving forward.
“Intensification and mixed-use industrial development are possible solutions to balance London’s housing and employment needs but are not silver bullets as they are not suitable everywhere. Current evidence also suggests that our capital will need much more industrial space in the future to meet London’s population and business growth needs, rather than supply being eroded further.”
In other news...
The Labour Party Labour opens the door for more investment borrowing (Reuters), investors bet on European consumer stocks as economic confidence grows (FT), central bankers see ‘immaculate disinflation’ within reach (FT), and finally, French family offices are drawn to private equity (Bloomberg).