Leading Indicators | A short BoE hiking cycle, rather than prolonged tightening

BoE raises rates to 4.00% - a December hike on the cards?

The BoE’s decision to raise the base rate from 3.75% to 4.00% is likely to mark the start of a modest and short-lived period of tightening, rather than the more sustained increase markets expect. Although a further increase in December remains a 50-50 call, we expect the base rate to peak at 4.25% by early 2027. Policy is already restrictive and, so far, there is little evidence of second-round inflationary effects. Further tightening should therefore be limited, unless energy prices rebound or remain elevated for longer.  

US investment in UK CRE rose 44% q/q in Q3

US investment in UK CRE rose +44% q/q to £3.48bn in Q3, pointing to renewed momentum. The subsequent midterm result shifts attention to the US fiscal outlook - divided government could make further fiscal expansion harder to deliver, although large deficits and heavy borrowing remain a consideration for long-term yields. Domestic conditions will remain more important for UK CRE, but the US policy outlook provides additional context for an increasingly active source of capital.

Lending surges to £3.2bn, with refinancing driving activity

Net lending to UK commercial real estate reached £3.20bn in September, taking the three-month total to a record £7.43bn. Much of this appears to reflect continued refinancing rather than an increase in new lending. The 5-year SONIA swap rate has fallen -21bps over the past month to 4.60% as markets have settled following the Budget, although financing costs remain elevated and are likely to keep the recovery in new lending and deal activity gradual.