UK economic growth has surprised on the upside since the start of the year and CPI inflation has fallen back to the 2% target rate.
The MPC added to the good news by surprisingly voting to cut its base rate by 25 bps to 5.0%. Any further loosening in monetary policy is expected to proceed cautiously.
UK commercial real estate continued its recovery in Q2 as MSCI’s All Property total returns increased to 1.7% from 0.6% in Q1 and capital values registered their first positive quarter in the last eight. In the 12 months to the end of June, All Property total returns improved to 1.0% from 0.3% in the year to March.
In the USA and UK stock markets continued their upward trajectory in Q2 supported, particularly in the US, by tech stocks. European and Asian markets disappointed. The share price of logistic warehouse specialist Prologis fell 13.8% and the UK’s All Reit index ended the quarter in negative territory. After the quarter ended a series of disappointing results from the big tech companies and weaker than expected US economic data caused a series of market corrections across key global markets.
The property market downturn was generated by increases in the risk-free rate and the cost of borrowing. Consequently, as the first downward movement in base rates since March 2020 was pushed back into Q3, the total return outcome for Q2 2024 was lower than anticipated. However, we expect the market to improve in the second half of the year, although it is likely that All Property returns will undershoot our previous forecast of 7% by at least 50 bps.
