UK wage growth rattles markets
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
UK inflation rose by 2.6% in the year to November, up from 2.3% a month earlier, the uptick was in line with expectations from economists surveyed by Bloomberg.
That will steady the ship a little after a turbulent 24 hours. Wage figures published yesterday morning came in very hot - average weekly earnings growth accelerated to 5.2% year-on-year in October from 4.4% in September, well above Bloomberg consensus expectations of 4.6%.
Those figures prompted traders to walk back bets on rate cuts next year. Markets are fully pricing two quarter-point cuts from the Bank of England in 2025 and attribute a roughly 20% chance of a third, down from 90% before the wage report. The BoE is expected to hold the base rate at 4.75% when it meets tomorrow.
The neutral rate
We'll move through the turn of the year with little clarity as to how long it will take to cross the so-called 'last mile' to central banks' inflation targets. Resurgent inflation is no longer a major concern for economists - certainly not in comparison to the likelihood and potential impacts of a global trade war - but the question as to where long term rates will settle is still very much open.
Granted, the dynamics in the Eurozone are looking increasingly benign, but the Federal Reserve will likely strike a cautionary tone when it publishes its decision later today. Officials are expected to cut the federal funds rate to a target range of 4.25% to 4.5%, a percentage point below where it sat in September, while signalling that they may make fewer cuts next year than markets are expecting - perhaps as few as three.
New estimates will offer some guidance as to where officials believe rates will sette in the long run, which is a crucial question for real estate investors. September's report suggested the neutral rate - the rate at which the Fed is neither stimulating or weighing on growth - could be in the range of 2.9%, but it's generally expected that it will move higher given the strength of the data in recent weeks.
Nevertheless, shares in US homebuilders are rising at a clip due to the prospect that Donald Trump begins cutting red tape.
Forbes House
Forbes, the company we all associate with the business magazine, will open a private members club in Madrid on Monday as part of a diversification strategy.
The familiarly named 'Forbes House Madrid' is aimed at business executives and entrepreneurs, and is situated in the Spanish capital’s financial district, the FT reports. This makes sense - magazine subscriptions are pretty thin gruel compared to a membership roster of wealthy executives that are happy to pay a fee for the privilege of spending even more on food and wine - but clubs are hard to get right.
In our recently-published Guide to Private Members' Clubs, industry insiders walked us through the dos and don'ts of setting up your own club. The sector is expected to grow at an annual rate of 11% through to 2027, at which point it will be worth $25.8 billion, according to research consultancy Mordor Intelligence.
Fewer, but bigger
Landsec announced yesterday that it had paid ADIA and Grosvenor £490m for a 92% stake in the Liverpool ONE shopping centre.
Landsec will now own and manage seven of the top-30 shopping centres in the UK. Retail sales at Liverpool ONE have grown by 5% over the past twelve months, with new leases signed 10% above ERV, relettings and renewals 5% above previous passing rent, and overall occupancy of 96%, the company said. Here is Landsec chief executive Mark Allan:
"The top 1% of the UK's shopping destinations provide brands with access to 30% of all in-store retail spend, which is why we continue to see brands focus on fewer, but bigger and better stores in the best locations."
Repatriation
Knight Frank's Tom Bill published his outlook for the UK housing market in 2025 yesterday. In there, you'll find some interesting details as to how buyers in super prime markets are preparing for the switch from the non-dom regime to the government’s new residence-based scheme, during which they will have three years to bring money into the UK at low tax rates. The Temporary Repatriation Facility (TRF) will allow transfers at 12% in the first two years followed by 15% in the third year:
There is evidence it is already being factored into buyers’ thinking, Tom writes. “In the last week we have experienced a number of super prime buyers specifically lining up their property search, and completion timings, to benefit from the TRF,” said Stuart Bailey, head of London super-prime sales at Knight Frank.
Others will use the TRF to increase the level of equity in their property. “Some have said they will bring in money from April to repay their mortgage given how it is now more expensive to service debt,” said Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg.
“My guess is that between a quarter and a third of non doms will leave but the pace may be slower than initially thought. Some will just ride out the next few years due to schooling or business interests in the UK.”
In other news...
Jon Thompson to quit as HS2 chair as price of UK rail project soars (FT).