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Housing Market

Weak consumer confidence in retail and property market signals need for interest rate cut

Fresh data from BRC follows Kantar’s latest figures detailing a record drop in retail price inflation in the four weeks leading up to Christmas 
David Hannah, Group Chairman of Cornerstone Tax, calls for the BoE to reduce interest rates in the new year following inflation’s continued drop 


According to the British Retail Consortium, weak consumer confidence facilitated a heavy drag on retail spending last month, with sales growing by an annual rate of 1.7% in December, down from 2.7% the previous month and below the 12-month average of 3.6%. These new figures are in line with the latest research from the global data consortium, Kantar, the UK’s monthly grocery price inflation fell by at the fastest pace on record in December, following the trend of similar price-tracking metrics in recent months. The yearly inflation of grocery prices dropped by 2.4% between November and December, from 9.1% to 6.7%. Following the Consumer Price Index’s (CPI) reported yearly decline to 3.9% last month, pressure has continued to mount on the BoE to look towards cutting interest rates in the new year as the inflation rate nears its 2% target. David Hannah, Group Chairman of Cornerstone Tax, the UK’s leading property tax consultancy, has advocated for reducing the base rate of interest as a means to stave off recession fears. 

According to Kantar, the principle factor behind December’s dramatic fall in retail inflation stems from an aggressive promotional strategy from merchants across the UK. Kantar’s data suggests that up to one-third of all spending fell on discounted items, as household budgets remained tight and competition intensified amongst outlets. The UK’s top budget retailers, Aldi and Lidl, reported their most successful season to-date, with Aldi’s sales rising 8% in the four weeks leading up to December 24th. 
According to David Hannah, these downward inflationary trends mirror certain elements of the UK property market, which has witnessed a tumultuous 2023. The drastic rise in mortgage rates over the past two years have dissuaded many would-be first-time buyers from taking their first step on the property ladder, as a result analysts have overseen the emergence of a buyer’s market – where house prices have fallen due to a lack of demand and consumer confidence. With the rate of interest remaining at an adversely high 5.25% - the UK’s leading property companies are predicting that this trend will continue far into 2024. 

Repeated trends of inflationary decline reported in recent months have provoked fresh calls for the BoE to look towards cutting interest rates in their next meeting. In a recent poll, a majority of the UK’s leading economists have predicted that the UK’s central bank will cut the base rate of interest at least twice over the course of 2024 as the UK enters the “orbit of recession” as witnessed by November’s announced fiscal contraction of 0.3%. David Hannah calls on the BoE to urgently rethink its hawkish macroeconomic strategy, asserting that the UK economy faces a serious risk of further contraction if previous interest rate rises aren’t reversed. 

David Hannah, Group Chairman of Cornerstone Tax, comments: 
“Today’s report from the British Retail Consortium shouldn’t come as a surprise to most shoppers, record-high mortgage rates and tight budgets have constrained the spending of households across the country, forcing them to make even tougher financial decisions this Christmas. Last week’s figures from Kantar revealed that retail inflation had, in fact, dropped at its fastest pace on record as merchants pursued aggressive promotional strategies in a bid to curb the collapse in demand. 

“Over the previous year we’ve witnessed a similar trend within the UK housing market, the same sky-high mortgage rates have dissuaded many would-be first-time buyers from entering market and taking their first step on the property ladder. As a result, there’s been an observable decline in asking prices as estate agents lower their offers in a bid to stimulate interest within a stagnant market. 
‘To stave off a recession and get Britain buying again, it’s now clearer than ever that the BoE must urgently rethink their macroeconomic strategy. With inflation nearing its 2% target, policymakers should look towards cutting the base rate by at least half a percentage point at their next meeting in order to signal optimism within the wider UK economy.”

David Hannah, Group Chairman
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