Leading Indicators | Pockets of resilience in an uncertain backdrop

Inflation expected to ease back towards 2% target this year

UK inflation edged higher to 3.4% in December from 3.2% in November, its first increase in five months, though this is expected to be temporary. The Bank of England expects inflation to return towards its 2% target by Q2, supported by measures in Chancellor Rachel Reeves’ budget, including energy bill cuts and a rail fare freeze. With inflation set to ease, the policy backdrop is becoming increasingly supportive of further rate cuts in 2026, which should help unlock demand and support activity ahead.


Safe-haven demand remains firm

Gold has surged to record highs in early 2026, rising above $5,000 per troy ounce and up +16% year-to-date, as investors seek safety amid heightened global uncertainty. A weaker US dollar, driven by concerns over widening deficits, alongside trade tensions and the fallout from the Greenland crisis have reinforced the flight to safe-haven assets, an environment that has typically been supportive of commercial real estate. 


Domestic momentum strengthening 

UK business activity strengthened in January, with the S&P Global Composite PMI rising to 53.9, its highest level in 21 months. The services sector continued to gain momentum, with the UK Services PMI increasing to 54.3, marking its ninth consecutive month of expansion, while the UK Manufacturing PMI rose to 51.6. Together, these indicators point to firmer domestic momentum despite ongoing geopolitical headwinds.