Economic overview.
Preliminary Q3 GDP data came as something of a surprise showing a further contraction in the UK economy. But most reliable lead indicators of activity have turned more upbeat in recent months. It now looks likely that the recession will officially end with the publication of the end Q4 date.
Construction sector. The level of house building edged up in Q3—led by the private housing sector—but the number of completions continued to decline. Looking at the construction sector more broadly, total orders rose by 8% during September, but they are still 7% below year ago levels (and 37% below their May 2007 peak).
Housing market. Taking an average of the Nationwide and Halifax house price indices, prices were broadly flat in the year to October (up by 0.3% y/y). However, indicators of momentum suggest that prices are now rising at a 13.4% annualised rate (on a three month on three month basis). This is because demand is growing at a faster pace than supply, although both are weak by historical standards. Over the next few months, the current degree of price momentum is likely to remain broadly intact. However, beyond the next 3-6 months the recent trend in prices is unlikely to be sustained.
Commercial property. Rents continued to fall in the occupier market during October although the pace of rental declines is slowing. Commercial property yields compare increasingly favourably against equities and bonds on a relative valuation basis. Indeed, commercial property has been looking cheap compared to bonds for some time, but only very recently has it started to look good value compared to equities (due to the strong rally in the share prices in the past few months).
