Ending a lengthy period of historically low inflation in the UK, the headline rate jumped from 1.2 per cent to 1.6 per cent at the close of 2016, as the 20 per cent fall in sterling compared to major currencies fed through to consumer prices.
Economists now believe that further rate rises are inevitable, with the Bank of England predicting that inflation will reach 2.7 per cent in 2018, contributing to lower economic growth figures for the year. Other experts forecast even higher increases: the National Institute for Economic and Social Research believes inflation will hit 4 per cent by the end of 2018.
This new momentum in consumer and industrial prices has meant interest rates may rise in the coming months, although there are no signs of an imminent change. The Bank of England’s target inflation rate is 2 per cent, so it is unlikely to increase interest rates until this is reached.
For real estate investors looking to acquire UK assets, the falling pound has proved to be a major bonus: they can expect to pay around 20 per cent less than a year ago. With the prospect of a ‘hard Brexit’ in which the UK leaves the EU Single Market now more probable, further falls in sterling can be expected. So long as investors retain faith in the fundamental strength of the UK economy in the long term, this gives them yet more reasons to look at UK real estate.
So long as interest rates do not rise to the point of dampening the real estate market, the outlook for the sector remains positive.
