Leading Indicators | Resilience beneath the noise: Q2 market data showing some positivity for UK CRE?

This times different? BoE hints softer labour market should limit inflation persistence from energy shocks

The BoE’s latest Monetary Policy Report suggests energy shocks are less likely to drive persistent inflation as the labour market loosens. Historically, adverse oil supply shocks have had a larger and more lasting impact on CPI when labour markets are tight, as inflation expectations and wage pressures strengthen the feed-through into prices. With the labour market now softening, the same shock should be less inflationary at the margin, limiting second‑round effects even as CPI is forecast to rise to around +3.6% in Q4.

UK CRE lending activity continues positive run of signals we’ve seen in Q2

Net lending to UK commercial real estate rose again in March, reaching £2.5bn, exceeding the previous two months and broadly in line with December. Activity was driven entirely by lending to standing investments (£2.5bn), while development lending was marginally negative (‑£5mn).With transaction volumes likely to soften, new lending for acquisitions should slow. However, refinancing demand is likely to remain supported by the uncertain market backdrop, helping to offset weaker new origination, which appears to have been the case in March.

Pension reforms to continue to attract LGPS capital to UK CRE

Parliament’s approval of the final Pension Schemes Bill, confirms that any mandated investment will be tightly limited. The final amendments cap requirements at 10% of default auto-enrolment funds, with no more than 5% directed to UK assets, leaving schemes with meaningful flexibility over allocation. For UK CRE, this is supportive: pension capital can remain a patient, long-term source of domestic funding at a time when uncertainty is weighing on activity. That role is already visible, with domestic pension fund investment into UK CRE rising +52% YoY in 2025 to £1.15bn, its highest level since 2018.