The interest rate cut sets up a crucial test for property: if it can come through the next 120 days relatively unscathed, it will be well positioned for whatever circumstance has to throw its way in the months ahead.
In the hunt for resilience, the Bank of England website itself should not be used as a benchmark. At 12pm on Thursday, with businesses and consumers desperate to know whether rates would fall, it buckled under the weight of traffic. Perhaps it was inevitable; this after all was the most closely watched Monetary Policy Committee decision of recent times.
More significant was its reasoning for the cut and parallel steps to purchase government bonds and ensure rate cuts were passed on. Taken together they would “strike an appropriate trade-off between supporting growth and returning inflation sustainably to the target over an appropriate horizon”, governor Mark Carney told chancellor Philip Hammond.
So why 120 days? In his reply to Carney, Hammond said: “I am prepared to take any necessary steps to support the economy and promote confidence. The government will set out its fiscal plans at autumn statement in the normal way.” Unless Hammond tears up his predecessor’s calendar, we can expect that statement in the last week of November or the first week of December – about 120 days away.
The impact of the MPC decision on commercial real estate will be limited. But it is symbolic. It both highlights recessionary fears, yet simultaneously makes recession less likely. And it does deliver a degree of certainty, answering the question of whether the Bank would cut. But will certainty deliver activity?
In the lobby of one agent’s HQ this week, there was still a hubbub: deals still being discussed and struck. Of course, the real test comes in September when true market activity would normally resume. If the bank’s measures this week help underpin something approaching normality – in property and across the economy – we needn’t expect a dramatic autumn statement. If there is no spur to activity, Hammond will need to act decisively.
Hammond, of course, gets property – or should do. He is the beneficiary of a trust which owns a controlling interest in developer and housebuilder Castlemead, and has long taken an interest in housing and planning policy, even if his ministerial brief was somewhat removed. That said, don’t expect fiscal sympathy. Like many chancellors before him, he is likely to see this industry as politically expedient when it comes to tax-raising.
That said, there was something else in the bank’s statement this week that should provide encouragement. The bank hopes its decision to purchase a further £60bn of UK government bonds, taking the total stock of these asset purchases to £435bn, will “trigger portfolio rebalancing into riskier assets by current holders of government bonds”. This coupled with further falls in the value of sterling, has the potential to boost investment into UK real estate.
Let’s hope it does.
• Developing in space may be some way off – as we, ahem, explore on page 42 this week – but the march of tech continues. Last month Matterport acquired Virtual Walkthrough in the first significant proptech deal, while this week another US proptech firm, Hightower, pounced, poaching Knight Frank’s Seb Abigail to extend usage of its leasing app in the UK (p22). Writing in EG this week (p36), Pi Labs founder Faisal Butt explains how the application of big data could curtail property’s traditional booms and busts. The challenging current climate may provide further support for the spread of proptech’s influence.
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