Supplement 17 Dec 23 – The Eve of the Eve

Dec 17, 2023

“An investment in knowledge pays the best interest” – Benjamin Franklin, polymath and founding father of the United States.


Before we begin – if you haven’t seen the Propenomix Advent Calendar because you listen on a podcast platform, it is worth checking out the Propenomix YouTube for the daily posts I’m doing throughout December to celebrate getting to 500 subscribers! Thanks to all the regular readers and listeners who have subscribed……if you haven’t yet, what are you waiting for!? Please can you recommend me to a friend who you think would be interested? I’m loving the commentary, feedback and interaction that I get on there!


Welcome to the Supplement everyone. 8 more sleeps – or 1 more Supplement if you prefer – until Xmas. Yes, there will be one on Xmas eve, don’t panic. And New Year’s Eve. As I said earlier this year, unless there’s been a nuclear event near South Birmingham, there’s a Supplement on a Sunday morning.


I’ve enjoyed the Advent calendar series so much, as an aside, that I’m open to any suggestions for the New Year. I’ve got a couple of ideas, but would rather just take any feedback for new video content from anyone who has any!


Quite the macro fortnight leading up to Xmas, but in between Xmas and New Year is devoid of much of interest other than Nationwide’s annual and monthly figures – so there’s an opportunity for a reflective piece which I’m always keen to write anyway.


This week saw employment figures released. Most just concentrate on UNemployment, but I do like to look at the bigger picture. Vacancies were down again, 17th time in a row, but only to 949k on the quarter, which is still the highest print ever if we go back before the pandemic. The trend is still contraction but there’s still a LOT of jobs out there.


Pay growth moved down to 7.3% from 8%, which was a much sharper fall than expected. This sort of movement downwards will start to make Jeremy Hunt’s minimum wage decision look “interesting” to some companies that rely heavily on minimum wage staff, next year.


When the ONS looks at the figures, they tend to adjust wage growth by CPIH (cost of living including a housing component). The CPIH is oft criticized because it has a “synthetic” element for the cost of housing – it’s hard, after all, to equate rent with a mortgage, the two situations are not the same (because in a rental you have landlord responsibility) – but likewise, tenants may spend on what landlords would consider a luxury – but still, the annual move is positive although it brings it right down to the 1.3-1.4% mark (real terms).


131k days were lost in October thanks to labour disputes (so far). 60% of that is healthcare and social work. 49k involved in labour disputes (at an average of 2.6ish days per disputed worker) – that 49k is the lowest monthly total since June 2022 (!).


The number employed (plus self employed),is up to 36.8 million as at the end of September 2023 – 210k increase on the previous quarter. 


So – things have moved on in absolute terms, but in relative percentage terms, haven’t changed much at all. 75.7% employed, 4.2% unemployed, and 20.9% economically inactive (Student, Sick, Early retirement).


Long term sickness is the one that stands out. Jan – Mar 2020 there were 15k more people declaring long term sickness than at the end of 2019. At last count, there are now 491k more than at the end of 2019, and that’s the highest number since then. 

It would be fairly easy to judge this figure, but it should be self-evident that regardless of opinion vs fact on the pandemic, vaccines vs no vaccines, the disease has led to longer-term issues and the NHS waiting list situation has not helped, of course. It is another worrying trend upwards that needs reversing, and that won’t happen until the waiting list situation has reversed and been reversed for some months. 


Anyway – the overall conclusion around all of the employment data would be “right direction, and not at the expense of jobs just yet”. Ergo – rates can stay higher for longer, but not as long as might have been thought since the 8% wage growth was expected to drop to 7.7%, not 7.2% – a fairly big miss to the downside.


Those who bought the 5y gilt at a 4.04% yield on Tuesday this week will have been feeling very good by the time it got to Thursday and caved in to around the 3.5% mark, that’s a pretty amazing 2-day return for a bond! The gilts and swaps moved HEAVILY in the property investor’s favour this week, shaving 0.5% off the market price of 5 year fixed rate mortgages – so apologies in advance for shouting but here’s a soapbox moment – IF YOU ARE DOING A MORTGAGE APPLICATION AT THE MOMENT AND HAVEN’T GOT TO OFFER – MAKE SURE YOUR BROKER IS CHECKING FOR BEST RATES FOR YOU. IF YOU HAVE GOT TO OFFER, CHECK THE FEE FOR SWITCHING TO THE LOWER RATE PRODUCT (IF THERE IS ONE).


Right, that feels cathartic. Back to normal chat now. Wednesday was a different day, but more of the same. I think anyone sensible would agree that wage rises cannot persist at the 7-8% level otherwise inflation at that level starts to look extremely likely once workers have had chance to catch up with inflation. Fewer would agree that a 0.3% drop in GDP in just one month (£7.5 billion quid – careless doesn’t even cover it) is “good news” but it did take further pressure off the bond markets and took Tuesday’s 4% 5y yield down to 3.75%. What took it to 3.55% overnight was the Federal Reserve meeting where Chair Jerome Powell decided to preserve his (and the Fed’s) credibility by not trotting out the same “stronger for longer” rhetoric. 


The “dot plot” (where the Fed’s committee members guess – sorry, I mean forecast – where they think rates will be in a year’s time) is a full 0.5% lower, as a median, than it was at the last meeting. The Fed wave impacts the UK markets, and indeed I predicted after Wednesday but before the Fed meeting that no MPC members on the Bank of England would vote for a rate rise (4 voted for one in September, 3 voted for a rise in October) – and I was spectacularly wrong. The 3 hawks stayed hawkish, and voted for a rise to 5.5%. They were defeated by the other 6 who voted to hold. I actually thought the most dovish (Dhingra) might vote for a cut – but no. The Bank have judged it isn’t time to even consider “ending the lockdown” just yet – or the hawks haven’t, anyway. With all the figures still up where they are – and no big expectation of a lower CPI before the end of the year’s figures (Next week November’s figures will be out) – this shouldn’t really be a surprise – they have resisted the knee-jerk reaction as central bankers should. The bond market was as surprised (or as wrong) as I was, as the 5-year yield jumped 10bps (0.1%) back upwards as none of the hawks were swayed. It does make sense though since all the relevant inflation figures are still so far above target/equilibrium in the UK.


The GDP forecast had been an uninspiring 0% – so the miss of 0.3% – especially when you consider the fact that the prediction had been higher for inflation, and this GDP figure is always stated in real terms/with inflation baked in – really was quite a miss to the downside. GDP normally roars in Q4 but looks like it will around about break even for Q4, although Q1 is (currently) expected to grow – following the PMIs (Purchasing Managers Indices) a contraction in services like we’ve just seen wasn’t unexpected, but the number is above 50 again now on the PMIs so that’s likely to have been a wobble – too early to say, but this doesn’t look like a recession, just more “sludge” or “treacle” evidence as per my preferred analogies.


We have to track back to inflation at this point. “Team Transitory” as some call them, after tails between legs for what feels like a couple of years, now – are back, suggesting that “they called it”. Those who have followed the tapestry closely will know this is utter hogwash – as I joked many months back, everything in inflation is transitory – but if it takes 4 years, does that still count?


This is also – particularly in the UK – particularly early. Here is the latest Sunak chat: “Our priority, going forward, is to control spending and welfare so that we can cut taxes” – or so he told the Spectator. So let me circle back around. Inflation still over 4%. Wage rises next year at nearly 10% for minimum. Inflation-linked benefits up 6.7% in 2024. Pensions up 8.5%. A tax cut – a further inflationary measure – with the stable door still not bolted back on.


Anyone else think this is risky? This is a bit like if the lockdown had ended in mid-April 2020 – case numbers had started to come down, and there was an argument for it – but it absolutely didn’t happen, of course. Some will say that the Government was too cautious – and again, in spite of your own position or opinion, one thing we could agree I think is that the Government was at best “educated guessing”, and at worst didn’t have a clue what and when it was taking measures (e.g. Eat Out to Help Out – a really minor policy of Sunak’s but the one that has become the most defining as his popularity has waned).


I think Team Transitory should still be packing their T-shirts back in their respective boxes and we should see what happens next year, I wouldn’t be surprised at all if next year’s CPI hovers between 3.5% and 4% – which – in case everyone has forgotten, is still well over and perhaps double the Government-directed 2% target.


Sunak’s current pledge is a bit like my “secret” to weight loss. Overeat in the first place, then start overeating a bit less – and praise yourself for doing so well. The Conservative proposition is supposed to be “don’t get fat in the first place” – and that’s been an epic fail. If you didn’t see, his approval rating hit -49 this week, a joint low with Boris. Labour are in their pomp (although I think there will be some feelgood factor come April next year, and as I said in the Budget analysis a few weeks’ back, that’s what Hunt is punting on).


What else should we note from the macro figures? Industrial production and Manufacturing had incredibly disappointing Octobers, both nearly 1% lower than forecasted, and both negative. This meant their year-on-year “progress” was under 1% on each, and contributed to the surprise GDP number. 


The RICS House Price Balance was also released, and (strange to say) the -43 result was a good one. Much better than the forecast – but those who have watched Halifax and Nationwide closely will perhaps not be so surprised. This also would have been compiled before the news of this week and lower interest rates – cue a price war on the high street for mortgages shortly, and rates under 4% will start to appear very soon in the “loss leader”/”grow the business” section of the owner occupier market.


We also had the UK PMI flashes for December, and they told a story of two halves – manufacturing was well under consensus at 46.4 (remember 50 is not growing or shrinking, under 50 is shrinking, over 50 is growing). Consensus was 47.5 so it is a fair miss underneath. This is the 10th month under 50 in a row, and consensus was a change in direction back towards 50, rather than further away which is where 46.4 is.


Services – however – and remember, services inflation represents 47% of the CPI figure – from a consensus forecast of 51 (which would have been a tiny improvement on November’s number of 50.9) snapped right up to 52.7. This is a pretty huge upside miss – but the real moral of the story is that the major engine of our economy on the production side is doing just fine. This is the polar opposite of the GDP figures that have been released this week – but, these are flash estimates for December (PMI), not the reporting on what’s already happened for October (GDP). It shows just how quickly things can change. Services PMI had 3 months in a row (ending October) under 50, and what came to pass was a contraction in GDP for October and a 3-month flatline on the back of this – but this flash real-time situation looks to ensure positive economic growth for December and pushes the time of the next recession back ever further. 


Bond market yields immediately flashed upwards on the back of this – the 5 year moved 6 bps up, but then dropped again significantly so that this week, the opening yield was 3.97% and the closing yield was 3.58% – nearly 0.4% off – a very, very welcome respite for property investors. The market is really betting heavily that a cut is coming soon and is ignoring what the Bank of England is saying – but also what it is doing. At this time I still feel there is a “stronger for longer” situation for the next few months/6 months at least, and yields don’t look like they can go much lower given where we are at today.


So – a veritable macro feast with some wide-ranging consequences – and it seems fair to suggest that this period of well-priced housing that I’ve identified some months back might not last that long. However – let’s not get overexcited. I think a fair template for Joe Public First-Time-Buyer next year looks like this:


Q1 – start the year, been waiting to buy, got deposit together alongside Bank of Mum and Dad – can’t resist waiting for a bit or shopping around hard to get a bargain

Q2 – perhaps find somewhere, depending on what rates are doing and how positive the papers are – but then, Election announced – oh let’s wait

Q3 – Election, take cover

Q4 – Let’s see what Labour do, push decision into 2025.


You could very easily see that being a not-too-dissimilar mindset for a slow-moving investor. Or those still waiting for the crash, which absolutely looks off (but, let’s face it, was never really on – as discussed). Inflation has done the damage. H1 next year looks fantastic for acquisition – but I’d get on with it, it might not last.

I am still utterly mesmerised by how hard it is for even particularly experienced commentators to understand inflation. It really is an incredible phenomenon. I write a piece in a well-respected industry periodical each month, and this month my article was critiqued to death about how I’d “got it wrong”. The chief issue was that the critique was completely wrong, and poorly researched – from a really experienced writer for the same periodical that produces work of an incredibly high standard, and made some fantastic calls around the time of the pandemic when many had lost their heads.


People have just forgotten, or never understood inflation in the first place. The hard yards have been done, here, and it isn’t yet back in its box. Time to predict an up-market for 2024 on the back of this week, and I’m upgrading my forecast to 2-6% up for the property market in the UK, most likely flat in real terms. There may be some “London drag” here, so you might be better to consider that to be a provincial forecast than a UK-wide one, as my expertise is not within the London market.


One more piece of analysis for this week – Zoopla released the rental market report for 2024 which was a little more bearish on rent rises than recent efforts. However, I wouldn’t be overly surprised if their 5% rental increase forecast played out. Again – there’s a London drag effect here and I think provinces could be closer to 7%, with London nearer 2% or similar (Zoopla also mention 2% up in London – prime reasoning being affordability). 


Zoopla data says new lets are up 9.7% year on year, nearly bang on where inflation was 12 months ago. New rental demand is 11% down year-on-year but 33% above the 5-year average. Like many post-covid related market moves, the peak has gone, and the trend is going the “right way” for a functioning market to return. At the moment……


There are 20% more homes to rent than 12 months ago, but 18% fewer than the 5-year average. The flow of new supply is unchanged year on year, but 6% lower than the 5-year average.


Scotland rents are mentioned – up even more in the past 12 months than the previous 12, but that’s likely the timing of the introduction of the rent cap. Richard at Zoopla is keen to point out how counterproductive rent caps can be, and all the evidence worldwide is that he is correct to do so.


Richard was also misquoted recently and upon the release of the report, this was turned into some kind of immigration clickbait piece. To settle that once and for all – he mentions 4 reasons for strong rental demand in the past few years:


  1. i) The re-opening of the economy/lifting of travel restrictions
  2. ii) The strong labour market

iii) Higher mortgage rates making renting cheaper than buying in some areas, and relatively cheaper in all areas

  1. iv) Record levels of immigration, particularly overseas students (who, of course, stayed out of the UK as there was concern that UK restrictions were not stringent enough during a pandemic – that’s my own emphasis)


That’s an explanation (and a good one, in my view) of what’s happened – and not the forecast. The trend is slowing one way or another. Those are all “one-off” or at least exacerbated factors that are unlikely to repeat themselves any time soon.


10% of London rental listings are reduced, 7% of the rest of the UK have seen a reduction. The average London household is spending 40.4% of their income on rent versus a nationwide figure of 28.4%. This report comes out quarterly and is well worth paying attention to, and seems to hold some pretty good macro predictions – but of course, you will need to take a view on your own investment area(s) in order to forecast accurately. The Zoopla prediction is 5-8% ex-London, and I think 7% is a good stab. 


Well done for getting to the end, as always – one more nudge for the Propenomix Advent Calendar – (with a release each day, one 60-second explainer and one longer-form but under 10 minutes). Subscribers are very, very welcome, and here are the links – for the channel: and here to the Propenomix website: – thanks for supporting me spreading the word, more subscribers will lead to more and better content. I will say it only twice more this year – Keep Calm and Carry On!