The UK economy avoided a recession, registering growth of 0.3% in the third quarter. This follows a decline in growth of 0.2% in the three months to the end of June. Looking ahead, uncertainty will remain elevated and will continue to weigh on business investment in the near term. Moderate growth will also begin to take its toll on the labour market, which is becoming evident. Upsides to growth include the fiscal stimulus measures and the already-high employment rates that will provide support to the consumer sector.
The Bank of England (BoE) voted 7-2 to leave interest rates unchanged at the November meeting. The likelihood of rate cuts have risen and if the upcoming UK data releases are much lower than expected over the coming months, the BoE's monetary policy committee may consider a cut to interest rates. At this meeting the BoE also released its latest forecast which assume ‘an orderly transition to a deep free trade agreement’ between the UK and EU. The BoE forecast GDP growth of 1.25% this year and 2020 - unchanged from the August forecast. Noticeably, the BoE revised down its 2021 forecast from 2.3% to 1.8% - largely due to a downgrade in global growth along with a revision to the trade weighted Sterling which will negatively impact net exports.
The three-month employment level fell by 58000, the sharpest decline in more than four years. The fall in employment is largely down to falls in part-time employment. Sector analysis shows employment in retail contributed to the largest slump in employment which is on the back of a number of store closures on the high street.
Another sign of a slowdown in the labour market has been the fall in the number of job vacancies, which have dropped for the ninth consecutive month. The annual decline in the number of vacancies is the largest in almost 10 years. As mentioned, the retail sector is the hardest hit with the number of vacancies down 22% y-on-y. According to analysis by PwC and the Local Data Company approximately 16 stores closed every day in H1 2019, which will be exacerbated after the Christmas period.
On a positive note, the BoE Agent's summary of business conditions revealed that labour market conditions appear to have stabilised, with professional services firms expected to increase staff numbers over the coming year while manufacturing firms were increasingly looking to use temporary staff to handle peaks in demand.
The continuing favourable spread between bonds and property yields is encouraging investment into real estate. The real estate market saw £13billion transacted in the third quarter, which although approximately a fifth below the levels from the same period last year, is now back in line with the 10 year average. This quarter we saw a return of large-scale deals, particularly in the Alternatives sector.
In the latest quarter we also saw a pickup in deals over £100m in London highlighting the attractiveness of the London office market. Investors are quick to snap up large assets as soon as they become available. In the big six regional markets, demand has been relatively subdued but that is down to a lack of larger transactions.
The leasing market has been relatively stable held up by the healthy levels of tenant demand. Although official labour market figures are indicating a loosening of the labour market, there is little indication of weakening occupier sentiment. Employment levels are still quite high and with the tight supply of occupational stock, occupational performance will remain stable.