Banks push back BoE rate forecasts after growth data shock

LONDON (Reuters) – Banks scrambled to push back their forecasts for the next Bank of England interest rate raise after data on Friday showed a sharp and unexpected slowdown in Britain’s economic growth.

The new forecasts anticipate the next BoE hike to take place in August this year or as late as 2019.

Before Friday’s GDP data most economists had expected the central bank to tighten monetary policy in May.

The change in banks’ forecasts signals a much weaker outlook for the pound, which has been among the best performing major currencies in 2018.

Last week expectations of higher rates lifted sterling to its highest since the Brexit referendum in June 2016.

The likelihood that the BoE will not hike next month also means bond prices could rally further and presents a more volatile backdrop for the UK stock market.

UBS scrapped its estimate of a single rate hike in 2018 after the weaker-than-expected growth figures while Nomura, which has long been hawkish on UK interest rates, now sees a first hike in August.

Bank of America Merrill Lynch and Natwest Markets strategists pushed back their May rate hike calls to November.

“We view the (economic) slowdown as more serious, and see no prospect of hikes in 2018,” said UBS, the world’s largest wealth manager, in a note.

John Wraith, a UBS economist, said inflation could fall back to the central bank’s target of two percent later this year and that concerns about talks between Britain and the European Union over the terms of their divorce could resurface.

Market expectations of a rate hike in May tumbled to less than 20 percent from around 50 percent, after GDP data showed Britain’s economy slowed to 0.1 percent growth between January and March, the weakest quarter since 2012.

Earlier this month the market was pricing in a 90 percent chance of a rate rise.

The market is now also forecasting no more than one 25 basis point rate hike over the remainder of 2018, from a near-certain two rate rises expected a fortnight ago.

Sterling GBP=D3 tanked more than one percent to $1.3748 and government bond prices surged in the aftermath of the data.

Reporting by Tom Finn and Saikat Chatterjee, Editing by Tommy Wilkes and William Maclean

Manchester – the UK’s property hotspot

Strong demand for city-centre living, a huge student population and urban regeneration make Manchester one of the best-performing property markets in Britain

Manchester, benefitting from the recent £1bn investment as part of the Government’s Northern Powerhouse initiative, is showing itself to be a vibrant, forward-thinking metropolis with the most attractive city centre investment market in Britain, according to JLL.

The property specialist company rates Manchester as its No 1 prospect for residential price growth over the next five years, with the annual average growth of 4.2pc compared with 2.4pc across the UK. Rents are expected to increase by around 3.5pc per annum between now and 2020.

Pivotal to the recent success of Manchester is a revival in demand for city-centre living

House prices grew by 10pc in 2017, with the average two-bedroom flat now costing £250,000 (an increase of 8.7pc over 2017), and rental prices rose by 3pc, according to JLL’s latest research.

Pivotal to Manchester’s success is a revival in demand for city-centre living – a trend that was at its height before the 2008 recession, which collapsed along with house prices due to sheer oversupply.

In 2000 there were 10,000 people living in the heart of the city. Now there are nearly 70,000, many of them students or young professionals with a desire to live close to where they work and play.

“City living has gained strong momentum in Manchester over the past three years and, together with an active student market, has pushed demand in both the sales and lettings markets noticeably higher,” says Neil Chegwidden, of JLL residential research.

Huge potential: canalside apartments in the Castlefields area of Manchester Credit: Getty

“And with housing supply in the city centre severely constrained, prices and rents have soared.”

For investors with an eye on Manchester, its student population of more than 85,000, spread among four universities, plays a crucial role.

The city has the highest retention rate of students after London, with 50pc choosing to stay after they graduate. Six in 10 Manchester-born students who go to university elsewhere also return to their home town after graduation.

Nick Whitten, JLL’s director of UK research, says: “You can see the reasons. They already know they enjoy living there and there are plentiful employment opportunities and affordable housing.

“More new businesses are coming to the city than anywhere else in the UK, outside London. Many of them are first-time investors in the city, which is a reflection of Manchester’s growing profile.”

Manchester: a market snapshot

4.2%

Average house price growth in Manchester over next five years

£250,000

Average cost of a two-bedroom flat in Manchester

£1bn

How much the government has invested in the Northern Powerhouse initiative

70,000

Number of people now living in Manchester city centre

The young demographic is also a driving force in the number of rental properties in Manchester – which constitute two-thirds of the city centre’s housing stock. A fast-emerging trend is a build-to-rent market, which accounts for a large proportion of the 30 new residential developments currently being built.

“Professionally managed blocks of rental apartments with leisure facilities and concierge services are forcing private landlords to up their game, which is a positive thing.

“Shortly, we could see landlords offering similar white-label services such as local discounts and access to a network of handymen to stay competitive,” says Mr Whitten.

JLL identifies nine Manchester “sub-markets” that offer potential to investors, including the centrally located Northern Quarter, Piccadilly and Castlefields, with its urban canalside living. St John’s Deansgate has become a prime market, with sales there last year regularly exceeding £500 per square foot.

Across the River Irwell, suburban Salford is prominent on the radar of the millennial market seeking a lower-priced, higher-quality alternative to city-centre living.

Focus area: Salford Quays is the UK’s second-biggest media hub Credit: Getty

Salford is also a key focus for buy-to-let investors, with Salford Quays now the UK’s second-biggest media hub, home to 80 media organisations.

“It has the benefits of being well connected to the city centre but better value in property terms. There are 7,500 homes in some phase of development in the Salford City Fringe, and Salford Quays attracts a professional audience, which makes it a good place to invest,” says Mr Whitten.

He thinks that another area to watch is Ancoats and New Islington, whose regeneration is largely funded by the owners of Manchester City Football Club.

As the momentum and investment continue in creating the Northern Powerhouse, Manchester is arguably the poster city and the greatest beneficiary so far, with a new arts centre, two new research institutes and improved transport infrastructure.

It has also seen the highest rate of job creation in the country, with the number of new jobs growing by 84pc between 1999 and 2015.

Lack of Student Beds set to Remain High Despite Strong PBSA Pipeline

New report indicates that the current full-time students to student bed ratio is 3:1

The UK’s purpose built student accommodation (PBSA) sector is set to see its supply increase by 4.3% by the 2018/19 academic year, according to a UK Student Housing Update by leading estate agent Knight Frank.

According to the agency, there are currently 23,000 PBSA units in the pipeline for the start of the next academic year, and a further 11,000 under construction or in the planning process for the 2019/20 academic year – a number that may rise if more developments receive planning approval.

Despite this increase, the new units are unlikely to offset the current undersupply of student accommodation in the UK, as Knight Frank estimates that the number of full-time students in the UK surpasses the supply of PBSA by 3:1.

Furthermore, with universities struggling to keep up with the demand for student accommodation, the private sector has risen as the main provider for future PBSA.

The private sector is forecast to account for 84% and 74% of the total supply of student beds delivered for the 2018/19 and 2019/20 academic years respectively.

Trends are also shifting towards more affordable accommodation, according to the report, however, ‘well-located assets in strong markets will prosper and demonstrate high occupancy and rental growth at all price points’ says Knight Frank.

Commenting on the report, the Head of Global Real Estate at Global Student Accommodation (GSA), Tim Mitchell said:

‘Acknowledging the challenges impacting the wider housing market, we see the absolute necessity of providing more good quality accommodation for students.’

‘The UK maintains its reputation for having some of the finest academic institutions globally and there will continue to be high demand for well-maintained PBSA in good locations from both home and international students,’ he continued.

New Legislation Approved: Lower Rates of Stamp Duty for Student Property

Having received Royal Assent on the 15th of September, the Finance Act 2016 will come into force as a law in the UK, excluding student accommodation from the higher residential Stamp Duty rates.

 

 

In March’s Budget announcement, former Chancellor George Osborne announced a new tiered system for Stamp Duty on residential property, which saw purchases on second homes and buy-to-let properties under become subject to a 3% levy surcharge – a law in place since April 1st 2016.

 

According to the Finance Act 2016, however, purchases of specifically designated student property will not be subject to the same tiered system for Stamp Duty as residential properties; since these types of dwellings are now being classified as commercial properties instead.

 

The new legislation will benefit investors of student accommodation, with this group now exempt from the Stamp Duty surcharge on properties below the mark.

 

Those purchasing student pads under will pay no surcharge as the current rate for these types of properties stands at 0%.

 

Last month, the University of College Admissions Service revealed the largest number of applications ever recorded for the 2016/17 academic year, with the number of university positions offered to students increasing by 3% from the previous year to nearly half a million.