The global economic outlook has worsened slightly, but the UK outlook has stabilised somewhat since last quarter. In the UK, real incomes are expected to fall as the cost-of-living crisis persists, with inflation remaining at over 10% in March 2023. A number of support package shave been put in place by the government including maintaining the Energy Price Guarantee (EPG) for three months from April 2023.
The March 2023 OBR forecast reported that the economy performed better in the recent quarter than was previously expected, and as such, the OBR revised down its forecasts for the short term. Output is expected to regain its pre-pandemic peak in the middle of 2024, six months earlier than expected in the November OBR forecast. Unemployment is expected to rise in the short term, and consumer and business confidence monitors are both low.Inflation is forecast to decrease over 2023 at a faster rate than the November OBR forecast expected. The bank rate, now at 4.5%, is expected by some to rise once more in 2023, although forecasts expect it will begin to fall in 2024.
UK prices ended the year at -1.0%, the first quarter of negative YoY growth since Q4 2012. QoQ growth was negative for the second quarter in a row (-1.8%). Our previous commentary forecast price changes of between -5% and 0% for 2023 and a five-yearly outlook of 10% to 15%. Agents report large inactivity in the market, but stable prices. Prices may see some fluctuations later in the year as inflation comes down and more people begin to transact. Our previous forecasts are retained.
PCL price growth was negative YoY (-0.3%) for the first time since Q1 2021. QoQ growth was stagnant at 0.0%. Our previous commentary forecast price changes of -3% to 3% for 2023 and a five-yearly outlook of 10%to 15%. Agents report that the previous few weeks of good activity has driven optimism for the 2023 outlook. The PCL market is more robust to shocks than other markets hence why we have forecast that prices will move less and so our previous forecasts are retained.
PCL lettings growth continues to be strong, with YoY growth of 9.3% to Q1 2023. QoQ growth has slowed again to 0.8%. Our previous commentary forecast price changes of 5% to 10% for 2023 and a five-yearly outlook of 20% to 30%. Agents report that tenants are less willing to pay heavy prices and some landlords have been forced to sell as a result, particularly with the increase in mortgage rates. However, there are still chronic supply shortages which agents do not expect to see improving any time soon. As such, our previous forecasts are retained.
Read the full quarterly research here.