At the point of writing, sterling has made a significant upward move against the euro and dollar, a development that has caught the attention of many looking for good news to hawk to constituents. This rise comes on the heels of a major pre-election inflation reveal, coupled with a market buzz that suggests a potential for rate cuts, possibly as early as August. According to fellow crystal ball gazers at Reuters, markets have priced in around a 50% chance of a summer rate cut, with a half-percentage cut completed in 2024.

With the consumer price inflation data revealing a cooling trend, we have now returned to the 2% target for the first time in three years. This significant shift raises an important question: will we witness a surge in the migration to risk assets and fixed-income products in the latter half of this year as the hunt for bigger yields gains momentum? Inflows into the P2P asset class would suggest so, with our sector being perfectly positioned to offer a comparable choice.

The 41-year high of consumer inflation at 11.1% reached in October 2022 now almost seems like a distant memory; with the benefit of glorious hindsight, economists will be left wondering how much of that was the macro perma-crisis in the energy sector and how much of it was the flurry of rebound spending after lockdowns, either way, there will be a vast array of political purloiner to take credit for what could be a natural phenomenon of economics. As sure as if you throw a ball in the air, it would be futile to debate with gravity as to the speed of its return; one could argue inflation has come down at this point, excluding the energy crisis, because of naturally occurring demand destruction; people reached the limit of what the plastic could take. Arguably, no amount of lever-pulling or reduced government spending can change behaviours; what typically happened is what we saw in 2022 and 2023: levels of personal credit borrowing go up and up to make up the shortfall until it can no longer.

To row this blog back, perhaps back to the boathouse to try and discover some semblance of a point, one interesting concept that's been revealed here is the seemingly sheer indestructibility of house prices. Historically, elections don't seem to have a noticeable impact on activity in the housing market. Rightmove states demand is at near record highs across June, with sales up 6% year on year, with higher for longer rates seemingly not making a dent. This is not a phenomenon limited to the UK; The Economist recently pointed out that house prices across Europe, America and China are all on the up, even though we have now effectively seen years of high interest rates.

Even with the pressures of limited stock, demand still must be fuelled by the ability to buy, and one thing the article observes via a YouGov poll is that household cuts and sacrifices elsewhere in expenditures, or even drawings of savings, have essentially been used to service these higher repayments. This data fits into the demand destruction theory; there is potentially a direct link between mortgage payment prioritisation and a reduction in consumer spending, which has led to overall consumer inflation levels.

Narrowing our view to our sector now, looking at the RICs UK-Economy Property Market Update for 2024, even though there is a noted flat trend, the effect of falling inflation has reintroduced some positive sentiment around credit availability, especially in relation to the construction of private housing. Although we believe central rate cuts will be cautious in Q3 and Q4, reducing the cost of credit will boost the construction sector, increase opportunities and clients in the market, and inspire some confidence. This optimism is further supported by emerging technologies and sustainable practices gaining traction with smaller developers, the clients in our market, and the folks who build our homes.

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