"When the facts change, I change my mind, sir - what do you do?” - John Maynard Keynes, Economist and father of the Keynesian school of Economics.
This week’s quote pertains to the deep dive, as ever, and you’ll see just how I stack up compared to an AI-generated set of predictions from my musings during 2025.
As the calendar creeps towards a new year, it’s a natural time to pause and tackle the biggest challenges that keep SME property businesses from achieving true, sustainable growth. For most, this boils down to two core areas: Laying a bulletproof strategic plan for the next 12 months, and finally cracking the code on financial measurement and accountability. If you’ve ever felt lost in a sea of bookkeeping data, or if your productivity methods are falling short, it’s time to switch from doing to leading—and truly understand how your assets are performing. Book in on the next Property Business Workshop with myself and Rod Turner - Thursday 22nd January - Central London - https://tinyurl.com/pbwnine
First up - project “continuous improvement” of the Supplement will be ploughing on throughout 2026. I was delighted to get feedback on last week’s edition that it was one of the very best so far - so “Kaizen” seems to be working. One to adopt for 2026 there if you don’t already…...but please keep the feedback coming and I’m grateful for what I’ve received so far.
Trumponomics to discuss as always. DT introduced an interesting concept this week: “Net wars”. I mean he didn’t say it, but that’s one framing of it of course. Maduro has been “disappeared” and one of my favourite “Pinball Lines” of all time (Look, you know I’m a nerd) is “Nobody messes with the USA” (Attack from Mars, Williams, 1995). Thought to be a pastiche of “Don’t Mess with Texas” and the Schwarzenegger style one-liners that characterised much of 1990s cinema.
I’m not going to get into the whats, whys and wherefores. What we know is that it makes sense to the way the current US Inner Circle looks at the world, and is a significant flex from a country that does not put itself in the mixer for international justice, and one that no-one ever particularly stands up to. We know the Fentanyl line (part of the continued rhetoric against Venezuela ever since before Trump came back to office) has no grounds in fact. It is perhaps just a veiled threat to Mexico and China, who are the root cause of the supply issue (in the one-sided ill-feted war on drugs that is ongoing at a cost of many trillions).
Is the Donald seeking to take control of Venezuela as a means of “reparations for damages to the US”? This sounds like one of the more worrying developments thus far. Critique from Vladimir Putin must be about as low as it gets in international circles.
Back to the economics - the concern will be, as always, a gap up in the price of oil (which was the only major investment class to underperform Bitcoin in 2025). Oil price spikes cause inflation. The current options market as I write this suggests about $2 - $5 on the price by the time Monday morning comes. But there’s time yet. There’s complex implications such as the widening of the “diesel crack” spread but I’m outside of my wheelhouse here, so I will stop there - at the moment the market isn’t worried that much, it is fair to say.
The word “Putinization” of US Foreign Policy has been coined this past week - and if you think at a simple level (which I think is the way to try and get into DT’s head) - the world doesn’t stop Putin from taking what he wants (it just makes it very, very hard for him to get it as long as those he is trying to take it from will fight to the death, to the bitter end) - and then they call in the Americans. Donald admires Vladimir and his strength - he’s said as much. Therefore, it isn’t a giant leap to “be more Putin” - What’s anyone going to do about it anyway? Starmer has said a few words of medium strength about upholding international law. So what? Is that it?
It isn’t a big stretch from “use route 1 brute force where we want” to “use route 2 or 3 subversive misinformation campaigns to get what we want in regimes who are, on paper, our allies, or our rivals”. Not that that wasn’t already going on, of course, but it does seem to make things a lot more clear for those who are concerned enough about Mr Trump (concerned enough to have devoted the opening of the whole Supplement to him since his election, for example). The American people are not swallowing the reasoning just yet, with polling suggesting they are 70% opposed to these strikes and that the vast majority don’t believe this will have anything to do with fentanyl supply.
In much calmer news, the UK has been allowed to pump 13k tons of beef into the US market at a reduced tariff rate, in exchange for the US having a tariff-free rate for a similar quantity. That kicked in on 1st Jan.
The £31bn tech prosperity deal remains on ice as negotiations are ongoing regarding the Digital Services Tax and the “non-tariff barriers” such as hormone fed beef, chlorinated chicken etc.
While restricting speech he doesn’t like, the Trump administration continued to criticise the Online Safety Act for infringing on free speech.
Good luck to the UK’s new Ambassador to the US, Christian Turner. To my knowledge, he doesn’t have nicknames like “The Prince of Darkness”, so perhaps he will be a cut above the last one. Knighted on the way in (for extra impact, surely) - he looks well for 53, but I’m sure this assignment will put some grey hairs up in that well coiffured hair (or perhaps he just uses pictures as old as I do on social media…..)
Crack out the hot water bottle as we return to the safety of the real time UK property market? Well, Chris had the week off this week, but luckily I was able to find some of his predictions for 2026, which are summarized below, in his usual data-led style, which I adore:
The core message is that market health is currently defined by volume (activity), not price inflation. While prices have flattened, transaction numbers have surged, signalling a robust and confident market for 2026.
1. The "Activity Over Price" Shift
Watkin argues that the "true measure" of the market right now is how many homes are actually selling, rather than the average price.
Rising Volume: The number of homes going under offer has grown consistently over the last three years:
2023: 824,665
2024: 958,239
2025: 997,472
Price Stability: Despite this surge in activity, average prices and cost-per-square-foot have barely changed. The market has rebalanced without prices climbing meaningfully.
2. The Criticality of Speed
Watkin highlights a direct correlation between how quickly a property sells and how likely the deal is to actually complete (avoiding fall-throughs).
The "Golden Window": If a home finds a buyer within 25 days, there is a 94% chance it will reach completion.
The Danger Zone: If a sale is agreed after 100 days, that chance drops significantly to 56%.
Current Pace: Currently, 53% of homes find a buyer within 35 days.
3. Key Drivers of Confidence
Several structural forces are fueling this renewed activity:
Economic Factors: Falling mortgage rates, low unemployment, and wage growth outpacing inflation have restored buyer affordability.
Supply Shortage: The UK has a chronic deficit of housing (needing 300k/year but delivering only ~210k), creating a permanent floor of demand.
Lifestyle: Post-pandemic priorities (space, flexibility) continue to drive decisions
You can also still watch his most recent Property Market Stats Show on his YouTube - @Christopherwatkin - and I highly recommend it because the guest really knew his onions (yep, it was still me).
I always give Chris a weekly shout out - he comes up with some great stats on a regular basis. He’s still getting that extra glow-up of course, due to me being on the most recent show! Drop him a like, a subscribe, and all the rest of it and some kind words for his content creation. His article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin, the Property Market Stats Show. Week 49 episode highly recommended! We will be back to business as usual either next week, or the week after, because we run a week behind and we haven’t yet had a whole calendar week of 2026 of course.
The Macroscope is still very dusty in Betwixtmas, although now that period is over of course. We had Nationwide House Price reports which caused a stir, and also of course the quarter was finished so the bit that no-one ever reports on needs its quarterly update too. We had the final manufacturing PMI too - which we will take a look at. There’s a gap - which I’m filling with the ONS Inclusive Wealth and income accounts UK - released in late December, but only running until 2023 (don’t). Still - interesting fodder. You know even on the lightest week we still need to talk about the gilts and swaps, so that brings up the rear as always.
Nationwide and the index, then. A surprise to many (indeed, the tick down of 0.4% on prices was a fair way away from the economic consensus of a +0.1% for December, month on month) - but I wasn’t overly surprised when they printed a mere 0.6% for the year. Why not? Well, at the end of 2024 they printed 4.7% for the year, which by anyone’s numbers was overenthusiastic. The base effects of that print have got to them, in my view, and they recognise that themselves in their own analysis (which is an improvement - they normally just “post and run”).
Their own analysis - that word again, “resilient” - in spite of subdued consumer sentiment. They once again flag the inevitable glut of transactions before a Stamp Duty change, and then the lull in the immediate aftermath. They highlight the affordability constraints easing somewhat, and they note the highest share of high LTV lending (85%+) for a decade.
What’s struggled? London, the South, and the East. No news there of note. They throw a dart at 2% to 4% House Price Growth for next year. Not a bad spread, that.
One last roundup for their 2025 report - flats lost nearly 1% of value, whereas terraced houses hit +1.8%, detached 2.2%, semis 2.4%. Quite illuminating. The bit they left out - the RPI-adjusted “real” house prices that they still produce. You’ve heard this before from me but - aside from a small wobble in 2013 after the post-crash market hit its nationwide bottom, house prices when adjusted for RPI are back where they were in early 2003. Yep - if adjusted for inflation, house prices are back where they were now nearly 23 years ago (one quarter to go!).
OK - the Manufacturing PMI then. The Flash number had been great before Xmas - 51.2 - the final print was 50.6. Whilst that’s a shame, that was still a 15-month high. Production growth was “supported by stock building and new order uptick”. Input price inflation accelerated, though.
The domestic market was the one responsible for the growth, although the export market looked to “stabilize”. The report talks of “reduced headwinds” - the budget being behind us, the JLR cyber-attack, and less concern over tariffs. The fear would be - if the rubber band has snapped back but only to 50.6, are we just going to fall away again in 2026?
The report closes describing falling business confidence, so this might just be an anomalous print, unfortunately.
How about the mercurially named “Inclusive Wealth and Income Accounts” for 2023? Well, on this one I’ve gone with a summary.
The Economy is Bigger Than GDP (And It’s Not Recovered Yet)
We are all guilty of obsessing over Gross Domestic Product (GDP). It’s the headline number politicians and economists cling to. But what if the map isn't the territory? The ONS has released some fascinating "official statistics in development" that try to measure the real economy - the stuff GDP misses.
They call it Gross Inclusive Income (GII) and Net Inclusive Income (NII). Unlike GDP, which just measures market transactions, these metrics look at unpaid household work, ecosystem services, and the assets we need to keep the lights on.
The Real Value of Work
Here is the headline: If you count the "invisible" work we do - cooking, cleaning, childcare - our economic output is massive. In 2023, GII per person was about £66,000, compared to GDP’s £40,003. That unpaid household stuff? It’s huge - equivalent to 77% of the entire market economy.
But here is where it gets sticky. While the standard GDP figures suggest we have bounced back to pre-Covid peaks, these broader measures disagree. GII and NII have not returned to their pre-pandemic highs. In fact, in 2023, growth for these metrics actually went backwards. GII dropped by 0.1%, and Net Inclusive Income fell by 1.2%.
Why the Disconnect?
Two things are happening here.
First, the "home economy" hasn't fully recovered. Unpaid household services per person are still 3.2% below 2019 levels. A big chunk of this is transport—we simply aren't driving and commuting as much as we used to, and that counts as a drop in "household production" volume.
Second, and more worryingly, is the Net Inclusive Income (NII) figure. This metric strips out depreciation. It asks: "Are we getting richer, or are we just burning the furniture to heat the house?"
NII is down because we are wearing out our assets. The depreciation of "produced capital" (machinery, buildings) is dragging us down as the stock increases and wear and tear sets in. Furthermore, our "human capital" is being eroded at a faster rate than before.
The Silver Lining?
It’s not all doom and gloom. Natural capital depreciation has actually improved compared to 2005. Why? Because greenhouse gas emissions have fallen. We are doing less damage to the atmosphere, which counts as a positive on the balance sheet.
The Bottom Line
GDP tells us we are recovering. These inclusive accounts tell us we are still carrying the scars of 2020. We have 73% of our production available for consumption without eating into our wealth, but the trend is clear: purely market-based measures are masking a weaker reality in our households and our capital stock.
We need to pay attention to this. You can't spend GDP, but you definitely feel the "Inclusive Income" in your daily life.
How do you suppose 2024 and 2025 will be recorded, after more impact of the cost of living crisis including the fiscal drag of the frozen tax thresholds? Is this just a case of one more metric we didn’t really need to tell us that things really aren’t going that well at the individual household level or the aggregated household level?
Well, on the bright side, this data takes so long that we can’t even blame the Labour Government for it…….It was 7 months before they got elected!
OK. The gilts and swaps for the last short week for a while, then…..and we had a nothing week, with no real new information. Open at 3.955% yield on the 5y, and close at 3.963%. Nothing to report. On the 30s, it was a bit different - the yield was very flat up until new year’s eve, and then it took a walk on Friday. Open at 5.219%, close at 5.278%, so a 6 basis point walk - reversing what happened last time out (last week), and so the yield curve got a bit steeper.
The 5-year swap stayed rooted around that 3.6% mark, closing on Friday at 3.605%, almost exactly the same as the close on 2nd December, and 40 basis points below the close on 2nd Jan 2025 of 4.01%
Regulars will know I prefer on these “nothing” weeks to see a bit of decay in that yield, rather than firmness. But I’m always trying to have my cake and eat it, of course.
This will segue us nicely into the deep dive, because my prediction around the 5-year swap rate is that it isn’t going to drop a lot below 3.5%, presuming the interest rate holds up/there’s no particular “crisis” to speak of. I mean a genuine one as well, a black or grey swan, a proper recession, something like that. The base rate might well go lower than 3.5%, but I don’t think it will take the swap down with it based on the current shape of the yield curve.
So - you guessed it - the Deep Dive will have to be “predictions for 2026”. I ran an interesting experiment to kick this off, this year. I trained the AI model, in deep research mode, to gather the economic consensus of all larger/more significant forecasting houses/banks/industry heavyweights.
I then got it to read the last 52 Supplements and tell me what I would be predicting. Yep, you read that right. Weird, isn’t it? Here is the output:
So - this isn’t what I think, necessarily, but it is what I SHOULD think according to the Supplements from 2025. Perhaps it isn’t the best methodology, because - like this week’s quote - when the facts change, I do change my mind. But nonetheless, it is a good starting point.
Let’s address them in turn. I like the forecast of +1.5% for capital growth. Not because it means such great results for all of us - it doesn’t - but I do think London prices remain in a bit of a hole, and they - alongside the South East - are likely to keep overall returns depressed, a little bit, during 2026. So - I’m willing to swallow that 1.5% prediction. I also believe that supply - followed by the huge reported Boxing Day bounce of record listings - is going to stay higher than any vendors would like in early 2026 at least.
Base rate? Well - this comes down to how much trouble we are in. I had a couple of comments on my YouTube in the past couple of weeks which are ultimately misinformed, saying that the Bank of England “only has the mandate to control inflation”. This is incorrect. They prioritise inflation control first and foremost, but they have mandates over the stability of the entire financial system (which is why they have a Deputy Governor for it) and also for markets and banking (which again they have a Deputy Governor for). The CEO of the PRA is the fourth Deputy Governor (for Prudential Regulation). The upshot of that - if the Bank needed to cut rates to help the economy, particularly in a period of rising and sustained unemployment (ahem) - and inflation wouldn’t likely suffer too much - they would absolutely do it.
This is the crux of the argument of those forecasting 2.75% base rates next year, but I fear they are suffering from hope, recency bias, and a case of thinking that Central Bankers move faster than they do. Remember the last vote was 5-4 to the cutters, and it doesn’t get more disjointed than that. If we do see inflation down at 2% in Q2, which is the Bank’s prediction, that’s great but still at target - not beneath it. It’s by no means clear that the rate will be cut multiple times. My gut feel is definitely between 3.25% and 3.5%, and I don’t quite feel strongly enough to knock back the 3.5% prediction in the table. Pretty good so far, then.
5-year SONIA swaps at end 2026 - 3.45%. Again, close enough for me not to argue. The floor certainly seems around 3.5%, because the longer part of the yield curve is demanding such a premium. We are led to believe that the yield curve is shaped like this because of long-term productivity problems (not getting sorted in 2026), healthcare issues (same) and climate change issues (no chance). So - not a bad squeak, which sees a 5-year limited company mortgage rate sitting between 5.25% and 5.5%. I’d love to say we will see 5% mortgages - or below- but on this central forecast, it doesn’t look likely (without whacking great product fees).
Inflation at 2.8% at the end of the year - well, the economy will need some heat back in it. Back to the uncertainty around unemployment, but on a central forecast - since I sit there saying that 3% is the new 2% - I can’t argue with the 2.8% either.
Core inflation - it’s put in the floor at 3.2% and I know why it has picked that up. I mention it semi-regularly. However, is that hard-coded into inflation? I don’t think so. I’m going to back “under” on that one, and go closer to 2.7% for Core CPI by the end of 2026.
Services inflation has stayed high, there. Similar logic to core CPI though - and again, I’m going to back the “unders” and go for 3.75% instead.
Unemployment the model has only gone to 5.4%. I’m a bit surprised by that, because a number of times - especially recently - I’ve been perfectly willing to explore scenarios that see unemployment at 6%. I certainly think over 5.5% by the end of 2026, and, in fact, I’m going to go for 5.7% instead.
RHDI - totally agree on the prediction, the only reason it won’t be worse is because inflation really is on the way down and there’s a lag benefit where already negotiated wage rises perform better than expected, thanks to lower inflation when they kick in. A small negative looks highly likely.
Average earnings - the model has stuck up at 3.8%. Again - I can see where this is from. I often say how sticky wages are; a lot of this depends on just how brutal or not the job market becomes. Companies are working to smaller margins than pre-Covid, and I expect to see them trying to recover some from their staff costs which have ballooned. If I’m right on unemployment, that will put pressure on average earnings, but where will doctors settle (for example) and what will that do to public sector wages? I could see private sector wage increases at 3%, but perhaps with the new found approach to taking the brakes off on public sector pay rises (regardless of the cost of unaffordable pension schemes), it will be the case that that number remains high? Remember, September’s inflation number was BAD, at 3.8%, when that’s the number used for index linked benefits, pensions etc (if that part of the triple-lock kicks in).
Rental inflation - the model has gone big. The problem I have with this is two-fold. I don’t see London doing any heavy lifting to contribute towards a 6.5% PIPR rise. I don’t see some big reversal there. Indeed, I’d be more tempted to go to 3.5% or something, simply because of fiscal drag and affordability. I think there’s an exodus underway, BUT many smaller landlords are selling to bigger ones, and people take a long time to do anything in property. We are only predicting what will have happened by the end of the year. Obviously, I’d love to be wrong on this one on the downside……not many reading won’t take the 6.5%!
Lastly, the continued minimum wage increase. This does seem to be largely heavily entrenched ideology from the incumbents, and let’s just spend a moment on that. The Conservatives figured that the way forward was to raise the minimum wage, because they were effectively subsidising the working poor. Also - unemployment was very low indeed, 3.5% at points. Why not put the minimum wage up and do a bit of rebalancing - as long as people are working, not too many mind that sort of behaviour?
Now. Fast forward. The party that proudly introduced the minimum wage, which at the time really wasn’t “in the money” (i.e. it didn’t actually push wages up for unskilled jobs) - wants to ramp it up to help with relative poverty (or the working poor, if you prefer) - so, not incredibly different from the last lot, but with a different manifestation. And a more rabid hunger to press on, regardless of the damage to individual business sectors such as hospitality. So - I’m not going to argue with the 4.2% in 2027. I can see the Low Pay commission buying right into it.
So - that covers the economic ones, and I can nearly retire happy it seems (although remember the model is pretty much trained on what I already think or should be thinking, so my primary source contribution is still important - sure thing, Adam, keep telling yourself that).....how about the non-economic?
Political? The Labour Party will still be in charge on New Year’s Eve 2026. Sorry to break that to you. Will Keir Starmer? There’s a 50/50 chance of a new leader, according to the betting markets, and if SKS goes you know Reeves is going too. There’s a way that Starmer stays and Reeves goes, of course, but the election results in May will be really bad.
Insiders say, however, that Starmer will NOT go of his own volition. It’s very hard for Labour to remove a leader. The best they might get is that he doesn’t stand at the next election as the leader. The argument is that the market is biased because the Tories changed leaders intra-election so very many times, but the two parties are very different in their governance structures.
So, I’m going to be contrarian and say that he will still be in post by the end of 2026. So will Reeves. Sorry in advance. Will they at least manage the budget a bit better this year (in terms of leaks and the likes)? It would be hard not to.
Rayner - will she have been bought back? I suspect she’s too powerful not to have been. Starmer will try to boost his ailing popularity with a strategic return to the front bench for Ang. It will be sickeningly hypocritical, but because she only makes “honest mistakes” it will all be fine. Apparently.
How about property-related? Well, it will be time for the talking to stop, the housing completions figures will be truly woeful (that’s a known quantity) and there will have to be some significant overrules in terms of grey belts, new towns and the likes. A “concrete vs countryside” civil war, of sorts, if you like the dramatic framing. Playing right into the hands of Lib Dems and Greens, already assaulting from the left flank.
More tax or restriction on joy, in general - whether that be gambling, or unhealthy foods, or similar. My own personal view is that a tax on ultra-processed foods is what we need to drive the right behaviour, but how unpopular would the “takeaway tax” or whatever it would be called, become. It’s a perfect crime for an unpopular party though, because they can raise more tax money without it being seen as a tax-raising exercise…..
The May 2026 elections will go very badly, but the result will be not a great deal. That’s my base case position (until the facts change!).
One last one - a cabinet reshuffle. It will be framed in the press as a “last roll of the dice” because if this prediction is correct, and Starmer DOES survive 2026, it really will be last chance saloon to get some results in 2027 and 2028.
I first used the word “Treacle” to describe the progress of the economy in the wake of the Liz Truss debacle. That is now more than 3 years ago (wonder how that lettuce is doing?). The reality of 2026, boring as though it might sound, is that more Treacle is the most likely outcome.
But - take heart. Flat markets are great for buying. All the small landlords (or many, anyway) want to go. There won’t be enough buyers, especially for tenanted stock. If you wanted a mistake to avoid in 2026, it would be trying to sell a property with a tenant in situ. Imagine the risk you take on these days if you buy a tenanted property without perfect compliance documents. My goodness me, the risk premium for that has gone up 100% or more, in my view! I’m sure other buyers will see it in the same way.
One more point before I leave it there - more easing in mortgage lending. This looks likely and might be a Q1 2026 thing. That would help move the market forward a little more, depending on exactly who is within scope and what difference it will be proven to make.
All good reasoning for keeping calm………
So - as we kick off 2026 proper, the next Property Business Workshop is filling up. Early Bird ticket sales are in their last FEW DAYS of sale! We start the year with a bang, discussing strategic planning and how to make the most of the next 12 months, with some of our own methods and takes on productivity and time management, alongside systems and processes. The other half of the workshop is about the most common pain point in SME property businesses - accounts, bookkeeping and group accounting. This is about measuring asset performance - not “how to use Xero”, but “how to make the most out of financial information” - what should you be seeing monthly, and how should you interpret it properly and use it strategically to grow your business, safely but quickly?
As always we have real life case studies about our own experiences, and close with our “no-holds-barred” Q+A. Anything individual to consider? Get a VIP ticket and join us for dinner, in a smaller setting with an opportunity to discuss any specific roadblocks or issues in your property business at the moment. Those dinner tickets are nearly sold out now, well done to those who have already booked on - there are 3 left as I write this - don’t miss out! It’s the best way to get a substantial conversation with myself, Rod and other experienced Property Business people - Join us! Thursday 22nd January 2026, Central London; https://tinyurl.com/pbwnine
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. Capital growth looks set to remain slow(ish) at the moment, although if you are in the right part of the UK, you will be well looked after by the combination of that plus inflation, the big bull run needs some runway first (although let’s see what the FCA and PRA do around easing lending requirements again) - but let’s have an amazing Golden Quarter together, it is a case of “here we go” in my opinion.