Sunday Supplement 10 Aug 25 - Split Decision

“In a way the philosopher and the barber are of the same guild; the barber cuts hair and the philosopher splits hairs.” - José Ortega y Gasset, Spanish Philosopher This week’s quote again looks forward to the deep dive - there won’t be many that discuss the historical context of this week’s Bank of England cut in rates by 0.25% or look anywhere near this deep - but there’s every chance that’s why you are here, so, in that case, enjoy! Before we go into this week full hammer - Rod Turner and I will be running our next Property Business workshop on Wednesday 1st October, in London - subject matter this time is Investment, with an emphasis on what metrics you really need to be considering to run your property business properly, and building your business to scale. We’re digging into the real fundamentals of property investment for growth—from proper valuation and strategic debt structuring to the investment metrics serious pros use (hint: ditch ROI and yield). Learn why some deals work for some and not others, how to manage risk as your portfolio scales, and when to shift gear from side hustle to scalable business. We’ll break bottlenecks, build strategic pillars, and unpack real-life case studies of fast company growth. How have we done so many deals? We’ll tell you! Book the SUPER EARLY BIRD tickets with 20%+ off, now: http://bit.ly/pbweight Kicking off, then, as has become necessary - Trumpwatch. A big week on the tariff front, other than anything else. There seems to be media noise around the actual incidence number of US tariffs at the moment, but the UK-VAT-style 20% is the one that seems to be sticking (seen as low as 15% reported). This is actually the highest since the 1910s. This is from 2.4% on inauguration day. Make America Expensive Again? India is paying a price for dealing with Russia, as well (or that is how it is being framed) at 50% after an additional 25% was slapped on Indian imports this week (to commence August 27th, or somewhere before mid-September depending on the exact products). Translation - Trump wants a different deal with India. A Trump loyalist was also appointed to the Federal Reserve board. I wonder which way he will be voting in future votes around cuts? It would look rather strange in the UK system, that’s for sure, if you had one person simply voting for a 3% cut or similar at each meeting when the rest were simply voting to hold or cut by 0.25%. The official line is “prioritizing employment over inflation” - which, of course, is quite simple to achieve - you simply change the inflation targeting system into an employment targeting system (widely accepted as the central bank’s second priority) - but the reaction in the bond markets of actually doing this would be inherently volatile, since the lenders (when they aren’t the Government/the Fed, anyway) are much more concerned around inflation than they are around unemployment! What continues, at a more macro and philosophical level, and is playing out in real time - investors are asking themselves what a safe haven asset is. Simultaneously, you might have heard about the executive order broadening what 401(k) plans can invest in in the US - that is the oft-used retirement plan in the states. What can they now include according to the order? Private equity, real estate and crypto. It isn’t immediate - regulations need updating, probably a year worth of work? Then plan providers need to react. I don’t expect the large providers to be falling over themselves to hurry this along, but then I wouldn’t count out another executive order either! The best analogy would be making an asset class only available in a SSAS (or possibly a SIPP too) available to those who are invested in the Government pension schemes via NEST or similar with their defined contribution pensions in the UK. Always an interesting week, and the global consequences of the tariffs are causing most organisations to revise their global growth forecasts downwards. The IMF revised theirs upwards, but the big organisations are basically forecasting around 3% global growth and similar for 2026. Over to our favoured subject matter on this side of the Atlantic - the real time UK property market. Chris Watkin was back - Week 30 has been reported on. Listings printed 33.7k, a slight uptick from last week’s 33k as the school holidays continue around the country as far as the figures go, and are now only 4.1% higher than 2024 YTD and 6.9% higher than the pre-pandemic market. My “10% more stock than a normal market” ready reckoner is still working on the back of circa 2 years of overperformance in listings. We are 12.6% ahead of the 9 year average, but that does include 2020 which pollutes the figures somewhat. We are not forging further forward into even more listings than historically precedent - but we are still listing more than we are selling, so it is all eyes on the withdrawal rate as a general rule. “Only” 22,700 price reductions in week 30, 14.1% being July’s official number, with 14% reduced in June, compared to last year’s 12.1%, May’s 13.4%, and the 5-year average of 10.6%. More stock, more reductions - absolutely and relatively. 33% more reductions than the 5 year average, if you take the difference between 14.1% and 10.6%. “25% more reduced properties than a normal market” also works as a ready reckoner. One in seven properties on the market are being reduced each month (so we are currently running at nearly ONE HUNDRED THOUSAND price reductions per month, to be clear!). Can’t find a deal? Just keep the legwork up and you’ll get there. You don’t tend to see 14%+ of stock being reduced in strong markets, by any stretch. Sideways……. 26.9k homes sold subject to contract, 900 houses up on the week before. Healthy is still the watchword. SSTCs are up 7.5% year on year and 14.8% on 2017-19, and still nearly keeping pace with 2022 (which to this point was a very hot market indeed). We went into August with 763,178 homes on the market - around 5k up on July’s number. For context, as the market got stickier before the pandemic that number was c. 660k, a sellers’ market is more likely to be under 600k. At the end of July 2024, 716k were on the market. These are more “higher high” numbers and so the “flat” feeling as I’ve been saying for some time now will likely continue to manifest itself in a steady market without much excitement as we get through the school holidays. It’s the second month of not moving too far forward though - less than 1% more homes on the market compared to the month before - it feels like we are nearing or are already at the peak? We can’t read too much into August’s activity anyway but there’s always an extra surge in September when the school holidays are over, alongside a clearout of “no-hoper” stock where vendors mostly can’t take the medicine that the corporate agents are trying to prescribe for them - so we likely need to see those figures before drawing conclusions, as they could be somewhat different this year with just so much stock out there. Chris also looks at the per square foot on sold STC properties - it has a very strong correlation with prices that hit the land reg in 5 months’ time. This time round - July was at £344.78/sqft and that was 1.97% higher than July 2024 and 3.85% higher than July 2022. It was down around half a percent on June’s SSTC number of £346.45, I think we are holding on to about a 2% - 2.5% up market for 2025, a little under prediction and also below inflation, wage rises and the likes. At the risk of the broken record - sideways, sideways, sideways. Fall throughs nudged back below the long-term average of 24.2%, printing 23.6% - relatively normal “noise”, there’s been very little volatility around the long-term average for many weeks now. The net sales are still playing ball - 20.6k, 5.9% up on last year and 10.5% higher than 2017-19 - not quite at 2022 levels but the stamp cliff will have forced a few more transactions out of bed of course, and as the year progresses then in the absence of any more shocks, things will likely catch up because transactions were significantly “disturbed” by the 2022 budget and the bond markets, of course, in comparison. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Into the Macrovortex - as all the metrics spiral together as usual. The final PMIs were out - once again an improvement on the flash numbers, but - just as per the housing market, as this economy continues to look more sideways than upwards, not as good as last month’s promising figures sadly. Halifax released their house price index under minimum fanfare, because a normal looking month doesn’t make column inches. A few of the other lesser metrics will be caught in the Bank of England committee wash-up that’s coming in the deep dive……which leaves room for the real-time indicator weekly report from the ONS that I like to look at on occasion. We then have to look at the gilts and swaps to finish, of course, especially in a week like this.

PMIs. We saw the flash numbers - a big drop on the rather (surprisingly) positive June numbers. The same happened in June, though - a big revision upwards. July was no different. How did the headlines go? A modest increase in sector activity is usually the narrative when the number is sitting around 52, as it was in services - the flash number of 51.2 was revised upwards to 51.8. The right side, but not with a lot of margin - dropping from last month’s 52.8. The other headlines - a renewed fall in total new work, and the sharpest decline in employment since February, as the private sector simply continues to reel from National Insurance increases and the cost of employing people having gone up even more at the tail end of extreme wage inflation (alongside extreme price inflation, don’t get me wrong!). This is the 3rd month in a row above the 50-handle or in actual growth territory, on the bright side. The total new work contraction can’t be ignored - the fastest fall since November 2022 (yes, I know, I say it every week). The narrative? Weak client confidence (believable) and delayed investment decisions (after the budget now - mostly thanks to poor communication if business taxes are not going up). Export sales fell as well, although it wasn’t as bad as the month before. In theory, the tariff regime is largely set now (ha ha), so export certainty should return somewhat. What’s theory worth, though, with DT in the White House? For 26 months in a row now there has been a reduction in backlogs of work, and also hiring freezes and redundancies continue thanks to inflation and lack of demand. Cost pressures are described as “strong” by firms. 44% see an expanding year of activity ahead compared to 12% forecasting a reduction, which is a robust sign of confidence and one of the better ones I’ve seen since the negative budget chat started in September 2024. Just the roundup from the Economics Director, then. Couldn’t maintain June’s growth rate - yep. Hiring trends especially subdued, with rising payroll costs the main factor (currently 4.1% is in the books for the National Minimum Wage to increase next year, not finalised yet). Concerns about tariffs are receding (certainty or near conclusion is always better than fear or the fog of war, every time). There are hopes of a boost to spending and to business from lower interest rates - well, I will have to comment on that more expansively in the deep dive! Covering manufacturing very briefly, the final print was 48 which was just below the flash 48.2, still contracting but a 6-month high. The National Insurance damage has nearly been absorbed, but not quite yet. Tentative encouragement was a good phrase used in the report, but “no assured path to strong growth” resonated and sounds like the entire economy at the moment. Construction is closer to our hearts, and this was instead an abject disaster. The headline - the sharpest activity contraction in over 5 years. Now you know what happened just over 5 years ago, so we might as well ignore Covid, and you have to go back to other crisis events to find similar contractions. It was described as a “renewed decline” in housing projects as - apart from anything else - Labour refuse to believe (or just don’t understand) what a block the Building Safety Act is placing on urban development projects at any meaningful height. The report opened with the words “considerable slump”. No-one enjoys that. The print was 44.3 down from 48.8, and the expectations had been a print around 49, not around 44. That’s a big miss from the predictions. What did we see? Lower volumes of incoming new work. Weak confidence. Less work undertaken on public sector projects. Civils actually took it the hardest. Payrolled jobs continued to fall. It is a miserable and unexpected rapid fall, although relying on housebuilding to hold up what has been a weak year for civils and commercial was always a concern, when the underlying conditions for development are clear to me who has confidence in his own forecasts but not yet evidenced by a healthy enough market. Many of the players prefer to wait for a little more certainty before acting, and that won’t come until the end of the year or the beginning of 2026, frankly. So - the overall economy growing at perhaps 0.1%-0.2% per quarter, we would hope. How tragic it is to write a statement like that - AGAIN - after I first used the notion of “treacle” in the Supplement in late 2022. Huge portions of that treacle have been served since. Let’s cheer ourselves up with the Halifax House Price Index, we hope? Well, it is the best monthly number that Halifax has posted this year, +0.4%, up from +0.1% last month. They see the annual growth rate at 2.4%. Their head of mortgages chooses to remind readers that challenges remain for those looking to move up or onto the ladder - but points out that affordability is gradually improving. She closes by saying that “we expect house prices to follow a steady path of modest gains through the rest of the year”. Cue a 0.5% drop in August then…..commentators curse……but, they sound a little more bullish than I do about this current sideways market - or are expecting these “more flexible affordability assessments” as they have been describing them to kick in a little quicker than I do - given they have all the data, they may well be right! Amanda Bryden continues by pointing out that whilst those dropping off 5-year rates are going to be paying more, those dropping off 2-year rates are now looking at lower 2-year rates and so that’s a big help in average rates and payments being made (compared to everyone dropping off a lower rate and going onto a higher one). Of course this is true. Into the constituent countries, then, and Northern Ireland is still ripping it at +9.3% year-on-year on Halifax figures. Scotland comes in at 4.7% compared to Wales at 2.7%. Halifax still has the North West leading at +4% YoY alongside Yorkshire and the Humber - with the South West, London and the South East (at +0.2%, +0.2% and +0.5% respectively) are laggards on their data. Nothing of concern, there, anyway. Interesting to see probably their most bullish call in years, to be honest, but that’s more a sign of how negative they’ve been than how bullish they are today - suggesting this steady path of modest gains. You know where I am on it, and I haven’t moved this week. Real time economic activity and social change indicators, then, for the week. Transaction data (from revolut) is showing a small increase in spending in the 18-34 age bracket over the past 2.5 years, but much larger increases in those from 35+, who certainly seem to be doing a lot more than they were. Direct debit failures are trending upwards, from 1.87% on 1-Jan-23 to 2.26%, and it is a steady path upwards which has started to flatten out now, but still not the trend anyone wants to see. The average transaction by direct debit in that time period is up only 5.57%, which is an interesting measure of inflation (which is running a lot higher than that) - showing just how much people cut back when the price of something goes up, I’d suggest. The number of online job adverts, unlike the ONS figures, is looking about level with 12 or so months ago. That’s the most positive looking piece of jobs data I’ve seen anywhere for a while! This is a comeback from an epic dropoff after what looks like it was the budget in October 2024. Redundancies also look fairly flat over that entire 2.5 year period, with many peaks and troughs, but as a trend line. System prices of gas and electricity look a lot more stable than they did in early 2023 and a good chunk cheaper, as you’d expect. Gas looks particularly promising. On renter affordability (data from Dataloft) they have 29% of gross income now being spent on rent (versus 26.4% in January 2023). Affordable on average, but the ONS consider anything above 30% as unaffordable and so that puts nearly 50% of renters in the unaffordable bracket according to ONS metrics. UK flights look an awful lot healthier with steady year on year increases in air traffic as well. Ships visiting the UK, however, are down and seem to be trending down. There isn’t a lot in it, but it doesn’t look like the direction we would want to be going in. Always interesting. This real time data shows a fairly different picture to what we are being told, or what we are measuring using other metrics. I’d always prefer real data to survey data, because often surveys ask what we are thinking of doing, rather than what we are actually doing. Even when they ask the latter, often people answer about what they are thinking about doing anyway! That leaves us with the gilts and swaps. It is worth repeating what I’ve said many times before. A cut in the rate, particularly one that is deemed to be “guaranteed” (i.e. a 90%+ certainty), may well not lead to a drop in the mortgage rate. This is often misunderstood - but when you think it through, it really isn’t a surprise at all. The market prices in the future price of the Bank of England rate, and then discounts that information depending on how far away that next decision is. It doesn’t go into Wednesday thinking “oh well the rate is 4.25%” and then get surprised at Midday on Thursday when the committee votes to cut the rate. The surprise would have been if the rate had been held (as I have discussed over the recent months - I’ve thought the decision was far closer than the 92%+ probability that was attached to the rate cut by the market). So - instead of a 0.25% cut in the price of short term money meaning a 0.25% cut in the price of a 5-year mortgage, it is possible to have no impact, or even raise the price of 5-year money if the market interprets the cut as uncertain or indeed incorrect given the circumstances. So - in this particular case we will get into the Bank of England vote in the deep dive, but we opened the week with the 5-year gilt at a 3.972% yield. It wandered down ever so slightly to 3.95% or so before the meeting, and then when the news broke that the vote had been very very close but a cut was indeed the outcome, it hardened to more like 4%, and closed the week after a small drift on Friday afternoon to 4.041%. The consensus would be that the committee would be largely united in cutting the rate - that didn’t happen, and that was deemed to make future rate cuts less likely in a particularly timely fashion. The market reacted. On paper, mortgage rates went up not down. Thursday’s close of 4.011% on the 5y yield translated to a 5y swap yield of 3.661%, preserving that 35 basis point discount that we’ve seen for months and months now. That yield is incredibly, incredibly flat given that the first cut was a year ago in this cycle as far as the base rate is concerned - 5 cuts in and the 5y swap rate has moved from 3.656% one year ago to 3.661% i.e. not at all. 5 year mortgages have not got one bit, not one basis point cheaper. Throw in a 5y swap rate of 3.68% one month ago and that picture is incredibly flat. Different on the 2-year rate, as you might expect - but particularly because the yield curve has flattened. 12 months ago the swap rate of 4.062% was over 0.4% higher than Thursday’s close of 3.634%, but still 0.4%, not 1%. This path was largely the path that was priced in 12 months ago with a flattening of the yield curve without a recession (but with an economic slowdown, largely, taking place). So - little to surprise regular readers. The 30 year gilts also had a hardening week - whereas the 5 year yield was up a tiny shade under 7bps, the 30-year only hardened by 4bps - so the steepness of the yield curve actually softened a tiny bit. This is in line with what we might think in a cut week where a highly likely cut is confirmed, and there’s limited other news that affects the gilts - the cut affects the shorter yield more than the longer yield, although both yields moved the way we wouldn’t expect (they went up, not down). This can all become a little convoluted on a weekly basis, but I always advise to watch the weeks where the direction of travel isn’t what you would think (a cut in rates means HIGHER yields, so the overall direction in the coming weeks on the yield would be expected to be upwards, not downwards, all else being equal - luckily, all else is not equal because the next macro “surprise” is always just around the corner, such is the nature of inaccurate forecasting). Outside of all of that though, the 30 year gilt still returns 5.427%, and I continue to see plenty of posts on LinkedIn about what good value that offers for a truly passive return, which has been in line with my own thinking to an extent. It isn’t enough to excite me - don’t get me wrong - but I’m talking as if I were a pension fund trustee rather than a private individual in his 40s, still willing to put in extra effort to achieve stronger returns. The big players in the market look at these risk free rates of return and consider them - and it changes the percentage that they allocate to riskier asset classes, dramatically. Bonds at these prices will continue to be popular for long-term players, without a doubt.

That does lead us rather neatly into the Bank of England meeting - and just as a reminder, this was a “meaty one”. These are the meetings where the interest rate decisions are really made, in a more steady state environment - the ones where a full MPC updated report is published. Forecasts are refreshed. This wasn’t so important when the interest rate was climbing (and we had “incidents”, such as Truss, which changed the course of history) - at the time the committee knew the rate needed to go up, significantly, and didn’t know early on whether they would stop at 3%, 4%, or 5% - or even higher, although they were very emphatic that 6% would NOT happen. While we are in the slower cutting cycle - the cycle that the Bank, in fairness, have been predicting for 18-24 months and delivering for 12, now, cuts are simply not occurring at the meetings where there are not updated and refreshed forecasts, as I have been busy pointing out to anyone who will listen.

There are two reasons for this. The real, and substantive, one is that the committee is waiting for new and updated information and has to predict the economy 6-24 months in advance when voting to change the interest rate at all. The other, more cynical and definitely less substantive one is that it gives the appearance that they are completely on top of what they are doing - in central banking, slow and steady wins the race, it is all very predictable at the moment (or it has been), especially a few weeks out from each meeting. No surprises. That wasn’t the case this month. I personally expected 2-3 holdouts. The vote was 6-3 last time out in favour of maintaining the rate, with 3 cutters. The holdouts I expected this time round were Huw Pill, the Chief Economist, because he is clear on his position. Then Catherine Mann, external member, because after a flip-flop she’s been clear on hers. They were my bankers. Possibly one more - Megan Greene - harder to predict because she is very close to exactly where the MPC needs to be, I usually find, and this vote was a bit of a knifedge one - but, gun to my head, I would have predicted 7 votes to cut and 2 to hold, marginally preferred to 6-3. You may not realise just how close the meeting was - or, indeed, the historic moment that occurred. The committee voted - and the first vote was 4-4-1. 4 voted to hold - it was Lombardelli that I didn’t see coming, here. This is the first vote where the Governor and the Deputy Governor for Monetary Policy (there are 3 Deputy Governors on the committee, but this is the most “relevant” Governor for this committee, in theory the most senior expert on the committee as far as monetary policy goes) differed in vote from the Governor. Or - this is the first time the Governor has felt confident enough not to follow the Deputy Governor’s decision. Andrew Bailey’s first vote as Governor of the Bank was on the 19th March 2020 (timing, eh?). Ben Broadbent - the Deputy Governor for Monetary Policy at the time - whose last vote was in June 2024 - never disagreed with the Governor (or, in reality in my opinion, the Governor never disagreed with him). You could just chalk this up as smart leadership. If you trust your resident expert, and you are the chair, unless you have a strong reason to disagree, you don’t. It also shows unity to the world - there is no division at the very top level of the central bank (I mean listen, it doesn’t compare to much when you consider you’ve got a US president making up schoolyard names about the top boy in the US Federal Reserve - but then we are not the United States, folks). Clare Lombardelli, who took over from Broadbent, had followed the same pattern - until Thursday. On Thursday, she was the fourth dissenting voice voting to hold rates. Now, it won’t surprise you to realise they’ve thought about this stuff before. There are 9 people on the committee. You don’t call in sick to a Bank of England meeting. There’s an odd number, and the Governor has no “casting vote” power, because there should never be a tie. However, the first vote is always a “free vote” - you vote for what you want. If you think we should cut more quickly - because, for example, you think the economic malaise caused by National Insurance rises and poor fiscal policy, sending unemployment upwards, is a more immediate threat to economic stability than the current inflation number being north of 3% (well, north of 3.5%, indeed) - then you might want to cut more quickly. This is exactly what Alan Taylor, external member, did think this time around. He has outed himself as even more dovish than Swati Dhingra, external member who has been voting to cut since February 2024 - and again has been very publicly clear on her opinion, and is therefore very easy to predict. In February this year she joined Taylor in voting for a 0.5% cut rather than a 0.25% one, and we had a strange meeting where the report was 7-2 in favour of a (0.25%) cut, but in reality it was an emphatic 9-0 with the 2 dissenters (Taylor and Dhingra) only dissenting on the size of the cut, rather than the cut itself. It might seem like a fine level of detail here. I get that. But every single word, every single word NOT spoken, every single detail is analysed at the top level by the markets, who react when they see things that they do not like. There’s a lot of money on the line here. The PRICE of the national debt depends on it. That’s the last time you will get anything that looks remotely like an apology from me for going into it at this level of detail! This time round the vote was different - because Lombardelli perhaps surprised with her actions (certainly surprised me, and the consensus - after being 8-1 last week - was instead 7-2 would vote in favour of a cut). So, there were 4 who preferred to hold. The commentators “knew” that Pill and Mann were holding. We suspected Greene might. Lombardelli - no, I didn’t see anyone call it. And her role is so very significant. An external voting the way they want - listen, that’s exactly what they are supposed to do. An internal disagreement - with two members, the two most heavyweight from an expertise point of view on the committee - the Chief Economist and the Deputy Governor for MP - that’s big. They would - in my opinion - outweigh the influence of the two other Deputy Governors and the Governor, when it comes to technically doing the right thing. So after that first vote, there were 4 to hold, 4 to cut by 0.25%, and Alan Taylor who voted to cut by 0.5%. This led to the first “side note” on the voting sheet in the history of the independent central bank - which read thus: “The Chair invited the Committee to vote on the proposition that Bank Rate should be reduced by 0.25 percentage points, to 4%. Alan Taylor preferred to reduce Bank Rate by 0.5 percentage points, to 3.75%. In order to secure a majority decision on Bank Rate, the Chair then invited the Committee to vote on whether Bank Rate should be reduced by 0.25 percentage points, to 4%, or Bank Rate should be maintained at 4.25%. Alan Taylor voted for a 0.25 percentage points reduction and this vote is recorded in this spreadsheet for August 2025.” So, Alan’s vote instead really was 4.25%* (second round) or however you want to frame it. And hence it was 5-4 in favour of a cut, or only just scraped it. We know where Alan will be next time out. It is very interesting that Swati Dhingra wasn’t with him as a 0.5% cutter. She must be concerned about the re-emergence of inflation this year and be sceptical as to how sure anyone can be that it is completely transitory, especially as we go on throughout the minutes - you will see why when you see what was presented to the committee. This would - all else being equal - mean that once again, next meeting where we don’t have an updated forecast (Thursday 18th September) there’s Buckley’s chance, as the Aussies might say, of another cut - but November, on the updated forecasts, looks still possible for a cut. Certainly not everyone has changed their position as yet, but some commentators have. The market path currently looks more like a February 2026 next cut - in line with my own predictions - rather than a November cut, and I’d be inclined to agree with that. We know inflation figures in the months until the November meeting are going to get worse before they get better, and that won’t help especially if they reach that 4% number which really has some market participants losing patience/hair/confidence. The MPC - apart from Alan Taylor - might want to see CPI on that downward path again to be sure, rather than prioritise loosening monetary policy to try and stimulate the economy. At this point, after a quarterly report meeting, I usually get stuck into the summary of the minutes. This quarter isn’t going to be any different - but the preamble was particularly important today, as it gives the market huge clues (some clues which I had already suggested, frankly, by reading the tea leaves a little better than many of the mainstream commentators). I’ve got to say, I broke ranks on socials this week and was compelled to comment on Kier Starmer’s post on Facebook, claiming credit for 5 interest rate cuts since taking charge. This is, probably, pure politics and I should have let it go. However, either his position is inherently disingenuous deliberately, or accidentally. It is the latter that has me worried. Does he not realise that this kicking and screaming cut from 4.25% to 4% is INDEED because of Labour - because of the damage they have done to the fragile growth in the economy, thanks to the NI tax rises? Because of the weak policy statement not to put taxes up on “working people”, the manifesto pledge that has already been broken anyway? Do we need another budget that freezes both business and consumer confidence, doing yet more economic damage, before we realise that putting rates down because you are doing a naff job is not something to claim credit for? I had to speak. Last time I checked, I had 2 likes on my damning comment (I’m a true influencer, clearly) - and one of them was from Rupert Lowe (yes, the verified real one). Oh yay. Anyway, back to the matter at hand. Off we go, then, into the summary and the updates from last quarter out. The Bank reports on “substantial disinflation” - in case we forgot the 11.1% in October 2022, this cannot be denied. The progress allowed for the rate cuts - true, very little to do with the Labour party (arguably this last one was, but for bad reasons, not good ones, for Labour supporters). There’s a reminder that the target is 2% (yeah, sure) - and that the Committee remains focused on “squeezing out any existing or emergent persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term”. Yes, they do have to say that. There’s recognition of Q2’s inflation number of 3.5% (they prefer to think in quarters, which makes sense - as I discussed they only REALLY make a decision once a quarter here, apart from in very wobbly times), blaming “developments in energy, food and administered prices”. I mean that’s awfully apolitical, I will tell you. They recognise elevated pay growth, with some recent decline (true) and also recognise that services inflation has been flat over recent months. They then refer to their updated forecast of inflation to 4%, at this point, for CPI in September. This is another looming black hole for a Government, because this is the CPI rate that sets inflation-linked rises for the Government for 2026. Feeding into the OBR forecast for the next 12 months, to be released just before the budget in late October. Yuck. After then - according to the report - inflation just innocently falls back towards 2%, probably, so they say. There is recognition that there might be “additional upward pressure on the wage and price-setting process” - the wage-price spiral that they’ve been concerned about, but really hasn’t formed a part of this inflationary cycle that started during Covid. Overall - medium-term inflationary pressures are judged to have moved “slightly higher” since May. No kidding. Growth is subdued (yep), the labour market is loosening (yep, unemployment up) and slack is judged to have emerged in the economy. This is one of the best reasons - while you are not hitting the inflation target - to cut the rate, and might have been the chat that got the 5 that did end up voting for -0.25%. Preserving the fragile economic growth we are just about ekeing out, in the face of weak and incongruent fiscal policy, is the best the committee can do at the moment with the hand that they are dealt. The Committee closes by referring to their ongoing approach as “gradual and careful”, that second adjective being needed to show you just how careful it is. They also point out that the future path really does depend on how much the underlying DISinflationary pressures continue to ease. I think this is the first typo I’ve ever spotted in the MPC report, and this is concerning. I’d have expected to have seen this picked up - because surely they mean underlying INFLATIONARY pressures. Either way - they do point out that the path of monetary policy is not pre-set, and that they will respond to evidence. To me - reader between the lines extraordinaire - I’d say that’s the first point they’ve made that says subtly “rates could go back up, you know, if they needed to” for some time. I don’t think they could say that more subtly, but that’s where it is.

We are a long way in, already, without being a long way in. With that in mind - and bearing in mind everyone’s time constraints - I’m going to spend the rest of the time focusing on what’s changed in the reporting in the past 3 months, and also shine a light on some of the Bank’s DMP (Decision Makers Panel) new data.

The Bank now sees growth at 1.25% per annum for the next 18 months or so before improving, and that this requires household savings ratios to continue falling, as people have been saving so much, so nervous are they at the future of the tax landscape at this time. Unemployment will continue upwards, says the Bank (I agree, perhaps for differing reasons). They also think that monetary policy is still restrictive, not helping the economy to push forward, according to market predictions of the rates over the next 3 years. This is potentially a sign of a push to lower rates even further, if the economy does start to struggle even more - which some are expecting. I am still prescribing treacle, and a squabble for 1% growth with mostly poor policies, with the occasional flash of growth-injecting policy (which also needs to be credited to Reeves, where financial deregulation is concerned, and Rayner and Reeves where planning reform is concerned). Their problem is that they are fighting against the other levers that Reeves has been pulling or arguably has been forced to pull by those pathetic manifesto promises. So - they have had cause to up their growth forecast to 1.2% for Q3, from 1.1%, and cut their 2027 Q3 growth forecast to 1.5% from 1.6%. Their inflation number for this quarter is 3.8% (from 3.5% predicted last time out), 2.7% in Q3 2026 (looks more realistic, but at that point I still think it starts with a “3” - you already have 4%+ min wage rise baked in, another 5% round of council tax increases, and index linked April inflation coming in around 4% based on September 2025’s number as already discussed). They are more positive about the amount of slack in the economy in 2 years (in spite of seeing lower growth at that point - go figure) - because they have seen the first piece of evidence of the household savings ratio actually coming down! Bank rates, then, before this report - market predicted - were 3.5% for Q3 2026 (looks on, more because of weak growth and unemployment rising than controlled inflation), and 3.6% for Q3 2027 (so, if anything, still seeing 3.5% as the bottom). So - is 3.5% really the bottom likely base rate over the coming couple of years? It is by no means a given. The skill - and the resultant pressure incoming - with which Reeves delivers the upcoming budget is huge. It is bigger than last year, because she had her “one-off” chance, and this is starting to look like a “two-off”, rarely forgiven in politics. There are those predicting a low at 2.5% or so, as more cuts are needed to repair the damaged economy that is limping forward. That’s not that unlikely in my book - we would, instead, continue with a relatively stagflation-leaning environment. We don’t have a recession baked in by any means. In spite of weak guidance, no real plan for job creation in the private sector, and more to concern business owners and investors than to encourage them, the economy limps on at a pace of around 0.75% or so per year. That will improve organically, the further away we get from April 2025. I’m perhaps out on a limb here and this is the first recorded time I am saying it here, although I have already said as much on LinkedIn - I don’t think business is going to get it in the neck this next time out. I think Reeves knows the damage is done and if anything, there might be a shade of help for the sectors that have shed a lot of jobs on the back of business rates normalization, and have taken the minimum wage pressures harder than other sectors (restaurants, hospitality, retail, etc). That - of course - in the way that the economy is nice and basic - only leaves the consumers, the people, to take it in the neck. In many ways, Labour’s only choice is to attack the savers, one way or another. ISAs, pensions - I don’t think helping people save cash in tax-free accounts looks anywhere near as attractive as it did with very low interest rates. Cash savers can just pay income tax, like everyone else. Imagine how popular I’d be in power……once again, my 758th claim as to why I would never be elected. But if I was anywhere near policy, this is exactly what I’d be saying to the Chancellor. It is more a question of how, politically, that is well communicated without attacking the middle class, a majority of whom voted for this administration of course and they are just the people Labour are hoping will keep them in power as long as everything is going “OK” come 2028/9. The Bank still sees unemployment topping out below 5%, but has fallen into line with my forecast of 4.8% unemployment for this year now (primarily because we are basically already there!). I’m not convinced we are NOT going above 5%, and indeed I think 5.1% - 5.2% now looks likely in this cycle unless there is a bit of a turnaround in job creation or overperformance in particular industries. For example, financial deregulation will be helpful to growth in the upcoming OBR report - I don’t doubt it, although no-one is talking about it - but what it won’t do is create a lot of jobs, because financial jobs are high-value-per-head, whereas the industries being carved up by NI rises and rates increases are low-value-per-head, people-heavy, sectors. Conveniently, the most important number of all - inflation in 3 years’ time if the rate moves as the market predicts - 2%. This number can tolerably be below or above by half a percent, but it looks ever so neat as the 3-year forecast, I’m sure you’d agree. The path of inflation forecasting is so smooth as to be jocular, if I am honest with you. I don’t think we will learn much more about the Bank or the future by spending more time on it. Moving to the decision makers panel - as a bit of revision, a group of businesses of different sizes who report on expectations for inflation, wage growth, and other important metrics that the Bank takes seriously. Pay growth by the end of this year - according to the DMP - just under 4% (which will still require some further moderation, but this slowing labour market has most certainly shifted the balance of power in favour of the employer). They see this as around 3.5% by the middle of 2026, which would be very much in line with “normal” and with 2% inflation - and, on that basis, is actually believable (especially watching the labour market mess unfold in real time), since these figures tend to be highly accurate as they are coming from the decision makers themselves, not a forecast but instead an aggregation of what some firms already have in their budgets or draft budgets (there’s most definitely a difference). In a year’s time the DMP sees CPI at 3.2% for July 2026, with 3 years ahead being 2.8% or so. Again - I could buy both of those - my own predictions are very close to that, to be honest. Much more believable than the Bank forecast. Households are not far off, although they are more bearish - but it isn’t stopping them saving their money. Arguably the rates on offer need to get below inflation, even though they pay income tax on the interest they receive on the savings that they do have at household level. The highest numbers that any of the forecasters that the Bank report upon for the following metrics are: GDP - 2.2% in one year’s time (I’d love that, but what are they smoking, that forecaster?), unemployment 5.4% - possible, but bearish for a reason, I’d be under that, but not a lot - and CPI - 2.6% (I’m with the DMP and see more like 3.25% or so, for sure, I have no idea what the other forecasters are playing at, to be honest. Ignoring core inflation, that’s for sure). The Bank in 3 years’ time thinks it will be 1.4% growth, 4.6% unemployment, and 2% inflation. That would sit reasonably well, but I think it is too hopeful unless we see some more congruent policy from Labour, pushing in the same direction, rather than infighting and a lack of support from their broader base when it comes to fiscal responsibility. Before I do close, don’t forget to book your SUPER EARLY BIRD tickets to the next Property Business Workshop that Rod and I are running on Wednesday 1st October in central London. This time around - investment metrics and how to run your property business at scale. My favourite topic of all! Book here: http://bit.ly/pbweight Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. It will be slow(ish), and take a little while longer to get off the ground - and the amount of stock around is still keeping things suppressed at the moment - but as yields currently continue to improve, it is a case of “here we go” in my opinion.

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