Inflation bites as the Budget approaches

UK inflation climbed to 3.5% during the year through September, up from 3.1% the previous month, amid a spike in petrol and diesel prices. That's an 11-month high and slightly higher than the 3.4% economists expected.

A rate hike to 4% at the Bank of England's November meeting now looks very likely indeed. Official figures published yesterday showed unemployment fell unexpectedly and wage growth picked up during the three months through August. That followed ONS data out last week showing the UK economy expanded slightly in August amid signs that AI is boosting growth. Economists had expected a slight contraction.

The spike in energy costs, the subsequent increase in mortgage rates, and some uncertainty over the Budget are weighing on property market activity. Asking prices climbed just 1% in October compared to a month earlier, according to Rightmove – that's below the 1.3% rise we typically see this month. Sales agreed are running ⁠8% below their level a year ago. The number of homes available for sale is at its highest level for this time of year since 2014.

A sustainable path

The run up to the Budget on October 28th has been markedly different to the past two years. Gilt yields have eased in recent weeks, having endured the sharpest spike in the G7 as the conflict in the Middle East began. That's been helped by pledges to stick to the fiscal rules and scrap the pensions "triple lock" – a sign that the government may understand that reining in spending rather than simply piling new tax on businesses and investors presents a more sustainable path to growth.

Thirty-two of 100 managing directors, vice-presidents and chief executives in large financial and corporate organisations surveyed by Newton X for the professional services firm Teneo said that a “sharp tax rise” on companies or investors would cause them to “consider pausing, reducing or stopping all UK investment over the next 12 months”. More than three quarters said that ministers were not giving them a strong enough reason to commit capital.

Nevertheless, increased taxation on banks looks set to be among the Budget's most contentious issues, despite warnings from the CBI and the IMF that it's a bad idea. The Chancellor has also ruled out increasing capital gains tax and reducing the mansion tax threshold from £2mn to £1.5mn. Plans for a new investor visa for wealthy people from overseas have also been put on ice, the FT reported this morning.

The primary levers

When issuing the IMF's warning against new banking levies, Helge Berger, deputy director at the body's European department, said the government would be better off prioritising cutting spending and raising other taxes. In the Times write up, he suggested modernising the property tax system and broadening the basis of sales taxes like VAT as better solutions.

The pressure to sort out the UK's bloated property tax system is growing. An independent committee chaired by Sir Vince Cable has called for the reintroduction of the Stamp Duty holiday introduced during the pandemic. That set a ceiling of £500,000 before the tax became payable, and generated almost as much tax revenue as was foregone due to increased activity in sectors related to the housing market. The committee also suggested exempting first-time buyers and downsizers, while admitting that approach would be much more complex to administer. 

Incentivising moving by reforming taxes is among the primary levers available to the government to increase the supply of new homes, but more could be done on the policy side to increase output. A new report by the Centre for Policy Studies think tank found that expanding the government's grey belt policy, which currently allows development on greenbelt land within 800 metres of railway stations, to 1,200m – a roughly 15-minute walk – could create space to build as many as 4.6 million new homes. The policy would also need to expand to include land near train lines rather than just train stations, while cutting excessive affordable housing quotas and building to ‘gentle density’ standards.

Whether Andy Burnham warms to that idea is uncertain, but reporting in the FT suggests the Prime Minister has "less appetite for “big greenfield sites” and is more interested in urban extensions that can be driven forward by mayors". Burnham is said to be sceptical of the centralised new towns programme set out by Keir Starmer "and wants mayors to take responsibility for significant new housing projects as part of his devolution push," the paper adds.

Mixed signals

The UK purpose-built student accommodation (PBSA) market looks markedly different in 2026. Headline investment volumes, pricing and the deal pipeline are sending mixed signals, which leaves investors with more noise to navigate than in recent cycles. The sector has become increasingly fragmented, with no single trend defining it.

Activity in 2026 illustrates this clearly, according to a new Knight Frank Student Accommodation Outlook. Second quarter investment totalled £164 million across 13 transactions, one of the lowest quarterly volumes on record and below the five-year Q2 average of 17 deals. Yet a strong first quarter took half-year volumes to £2.3 billion, keeping year-to-date activity ahead of 2025.

Provisional estimates put third quarter investment at around £425 million, which would take year-to-date volumes to approximately £2.7 billion, materially below long-term trends.

The slowdown reflects friction over pricing rather than weaker demand. Buyers and sellers continue to disagree on value, which is prolonging negotiations and delaying execution. Prime direct-let yields stand at circa 5.00% NIY in London and 5.75%-6.00% NIY in the regions. Buyers want evidence of value, so marketing periods are longer, due diligence is deeper, and deal structures are increasingly carrying more conditions.

Appetite remains strongest for first-generation standing stock, particularly where there is scope for value-add returns. Even here, fire safety requirements, remediation works and a later leasing cycle continue to delay transactions. See the report for more. 

In other news...

Microsoft pulls out of UK Nscale data centre deal over power delay (Reuters), and finally, St John’s Wood is raising its head above the parapet (FT).