Downside risks continue to dominate the outlook for the UK’s economy.
A weak outlook for economic growth requires a loosening of fiscal or monetary policy or both. However, CPI remains stubbornly high and the MPC has slowed down the pace of base rate cuts, a stance they continued in November by keeping rates at 4%, although the chances of a December rate cut have now risen.
The cost of servicing the national debt has risen and the Treasury must consider tax increases or spending cuts as it approaches the Budget in late November
World financial markets rose again in Q3, but the IMF and Bank of England have warned that global stock markets may be at risk of a sudden market correction if concerns about overcapacity and profitability in the AI sector, are realised. The FTSE experienced its best quarter since late 2022 driven by a resilient global economy and a weakening British pound but the FTSE REIT index disappointed arising from concerns over increases in the risk-free rate lowering the capitalisation rate.
In Q3, the commercial real estate market flat lined. All Property UK total returns, as recorded by the MSCI Monthly Index, increased by 2 bps to 1.77% from 1.78% in Q2. On an annual basis, total returns of 8.6% year-on-year in September have seen little change since March.
Having downgraded our forecasts in Q1 and Q2, we have this quarter maintained our 2025 All Property total return forecast of 7.0% and our projection of 8.0% on a three-year annualised basis reflecting expectations of improved performance in 2026 and 2027.
