Leading Indicators - Shifting ground: weak productivity, stronger investment

Stuck in low gear, will tech change the trend?

The OBR’s anticipated downgrade to productivity forecasts highlights the UK’s long-standing productivity challenges, a structural drag on growth potential and fiscal flexibility. However, the recent  £150bn in US investment tied to the UK-US tech deal, including Microsoft’s UK data centre expansion and joint AI commitments may offer a potential offset. These inflows could support efficiency gains, narrow the productivity gap, and improve the UK’s medium-term outlook within Reeves’ fiscal framework.

Unlocking growth through infrastructure investment 

The UK has approved Gatwick’s £2.2bn second runway, a project aligned with Starmer’s infrastructure agenda and expected to create 14,000 jobs. The expansion will add around 100,000 flights a year, lift capacity to 80m passengers, and inject an estimated £1bn annually into the economy. For UK CRE, these developments could potentially signal stronger logistics and hospitality demand around key hubs, reinforcing investor confidence in real assets.

All Property returns eased, but Retail still leads…

In the latest IPF survey, the 2025 All Property total return forecast has been revised down by -70bps to +7.4%, driven by a weaker capital value growth outlook (from +3.2% to +2.5%). Between 2025-2029, both Retail Warehouse and Shopping Centres are expected to be the best performing sector with a total return of +8.4% pa (per annum).