Knight Frank plays down Bank of England recession talk

Estate agency Knight Frank has questioned the Bank of England’s prediction of a near-recession in the UK.

The Bank forecast for UK GDP to fall by 0.25% in 2023, before rising by a modest 0.25% in 2024, while Governor Andrew Bailey talked of “hardship” and a “very sharp slowdown”, with inflation expected to peak at around 10% in Q4 this year.

However Knight Frank responded: “Some buyers and sellers have understandably become more hesitant since the warning, although it doesn’t feel like a black cloud has suddenly descended over the market.

“We expect double-digit house price growth to slow to single digits by the end of the year as mortgage rates rise, the cost-of-living squeeze intensifies, and (perhaps most importantly) supply increases. However, our central case for house prices remains that a recession will not get thrown into the mix.”

Capital Economics previously said the Bank’s “dramatic cuts” to GDP will “prove to be too downbeat”, questioning its assumptions on energy costs, the absence of government support and the mitigating role of household savings.

While some economists agree with the Bank, the EY Item Club issued its own forecast last week, pointing to GDP growth this year and next.

Given the conflicting opinions, Knight Frank recommended for people to focus more on what the Bank does rather than what it says.

It pointed out that, as the Bank continues to hike the base rate, there are practical rather than theoretical concerns in the mortgage market, with lenders currently withdrawing their best products on a daily basis.

Simon Gammon, head of Knight Frank Finance, said: “Proactive borrowers are booking in rates now.

“Some offers are locked in for nine months and it makes sense to act sooner rather than later when every day between one and three lenders are pulling their cheapest products, with rises of between 10 and 30 basis points.”

The situation is being exacerbated because lenders do not want to be “top of the leader board” for the most attractive rates on the market, added Gammon.

He said: “Too much lending can lead to issues around maintaining service standards and bottlenecks. The other reason is that in an environment where rates are rising, the concern of lenders will be focussed on managing their loan book rather than growing it.”

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