"What if things are different? ... Models are only as good as the data that is fed into them." - Clare Lombardelli, Deputy Governor for Monetary Policy, December 2025
This week’s quote pertains to the deep dive, as ever, as we have a dedicated Bank of England week. The focus (following the Bernanke Review) is on more scenarios and real-world judgement rather than abstract models.
As the calendar advances through the Golden Quarter, our next Property Business Workshop is live and tickets are already selling. This is about structure, and exit - yours, and others. No exit plan? You go out one way or another. Things have changed, as well, with pensions being brought into the scope of your personal estate. What does this mean for SSAS - according to people that use them, but don’t sell them - an objective viewpoint. Book in on the next Property Business Workshop with myself and Rod Turner - Wednesday 22nd April - Central Manchester - www.tinyurl.com/pbwten
Trumponomics kicks us off as things, sort of, seemed to have calmed down after the “January Sale” on the investment credibility of the United States. We tire of the ongoing bully-boy threats of not getting US tech investment if we don’t open our markets more in terms of pharma and agricultural products. The pressure is on now we don’t have the EU to hide behind. Size isn’t everything, but it definitely matters to Trump.
The “loyalty pact” this week - the Critical Minerals Security Partnership - is aligning industrial intelligence with Washington, and keeping the UK car industry alive in the process - this is at least the Whitehall interpretation of it. The US will be able to deep-dive audit UK vehicle supply chains, with a view to seeing if Chinese Lithium is making it into EVs. There’s a clear shift in the US to seeing mining as a strategic and defence issue, not just an economic issue.
British-made EVs will be able to be sold in America thanks to this partnership, because we become a “free trade agreement” partner to qualify for the current $7,500 consumer tax credit for buying an EV in the states.
How hard is it to wean off Chinese supply? Well, the target is no more than 60% of any single critical mineral from “any one country” - ahem - by 2035. So - there’s time. Friendshoring (are we really still friends? I guess so) - or Golden Handcuffs, which seems a more appropriate term. But then again - what do you expect?
There’s been a framework agreement around de-escalation for Greenland; all a bit tiresome though, because it’s just yet another re-run of the art of the deal, and standard Trump tactics. They will buy Greenland. That’s my view. Let’s get on with it.
Then there’s a bit of wrangling around Nuclear weapons - which, to be honest, the UK is best kept out of. Russia wants the UK and France to be included in any US-led pact - the UK is resisting and wants to remain independent. Sounds wise.
Over to Chris Watkin’s analysis for his roundup of week 4 of the UK Property Market - Real Time edition.
Chris goes Sunday to Sunday, so this was the week ending 25th January. We managed even more listings than in 2025 for one more week - just about - so far (133,139 versus 131,966). The glut of listings is definitely back, at the moment - following on from Boxing day and record listings according to Rightmove, which have been lost in Chris’ real time stats remember because he doesn’t run the analysis over holiday weeks. The lag of listing before the budget is most certainly over - if we left 2025 and 2026 out, the average number of listings by this point in the year would be around 105,000 - we are about 28% ahead of that, so that’s seriously statistically significant.
What about reductions? 20,500 price reductions in week 4 is the second biggest number of reductions for any year in the past 10. The biggest? 2025. The trends continue.
Having said that, the whole market continued with bigger numbers than average, as 26,060 homes went sold subject to contract. The week 4 average is 24.4k.
Net sales are in 3rd place over the past decade - behind 2021 and 2025, at the moment. Remember in 2025 there was still urgency and hope of beating the stamp duty deadline for deals agreed in the first half of January, for sure, and 2021 started like a rocket. Being ahead of 2022 - which in the early part was still touching white hot - is impressive - and 25%+ ahead of a “normal” pre-pandemic market. There’s plenty of willing buyers and that’s keeping activity up, but the glut of supply continues to keep prices in check.
To start January there ended up being a 10-year+ record number of homes on the market, 613,882 thanks to this record Boxing day other than anything else - 2025 started with 605,088 OTM. One more stat - available rental properties in December 2025 in the UK - 285k, compared to 258k in December 2024, and 235k in December 2023. Supply is increasing again - a longer timeframe is needed to put all of that into context but if new rents are flat, or even down - which some are telling me they are - 10.5% more stock than the year before tells a story, of course.
Chris - things just feel “right” when we can see the real-time data that you share with us. Thanks for what you do! If you want some help positioning yourself as a local market expert - as an estate agent or any form of property professional - give Chris a shout! Either way give his channel www.youtube.com/@christopherwatkin a follow and some love, please!
How about the Macrotainment for this week? First week of the month, and it started on Monday 2nd so we get Nationwide and Halifax indices as a twofer in the first slot. The finalised PMIs were out and they were fab, so let’s celebrate (with caveats, as usual….). We then look at some Bank of England mortgage data in more detail than usual, as there are some super visuals available on the Bank website that I don’t talk about often enough. Bringing up the rear we still need to talk about the gilts and swaps.
So - it all went horribly, really, in 2025 according to the Nationwide and the Halifax, right? Prices didn’t really move? Or - perhaps the return of the stamp duty choked the market (that would be more of a fair comment) - plus, we know and have been talking about this supply glut for all of that time as well. How did 2026 official begin, in that case, within the wrapper of the Watkin real time stats which we’ve already discussed?
Monthly +0.3%, annual up to +1% according to Nationwide - Halifax went with 0.7% MoM, but agreed with the +1% annual. Halifax’s average house price - always the highest of the bunch - breached £300k for the first time. People with more expensive houses choose Halifax (or the Lloyds group, anyway), clearly. Nationwide didn’t pull up too many trees with their special report which concluded that wage growth outpacing house price growth, plus falling mortgage rates, meant that affordability improved in 2025.
However, they did put some nice colour around it. An FTB with a 20% deposit (and that is the average, for whatever reason, even though so much fuss is made about the deposit) had a monthly mortgage payment equivalent to 32% in 2025. The long-run average is 30% (that time series starts in 1987, and the time below the curve is NOT 2009 to 2021 as you might think, but instead 1991 to 2003 as it goes). That 32% compares very favourably to 2023’s 38% - that’s a big change in just two years.
We are actually still below the long term average in Yorks&Humber, Scotland and “the North” as Nationwide prefers to lump it together. There was one more really interesting bar chart, plotting first-time buyer average earnings versus regional average earnings for an adult full time worker - in London it is still around 45% above for an FTB - but in Northern Ireland, Scotland, Wales, Yorkshire and the North East - the average first time buyer earns LESS than the average full time worker. It really only looks problematic (aside from London) - guess where? The South East, and the East. One more way of making that distinction…..
Halifax found a different way of making the same point, and indeed it made their bylines: Regional differences in house price performance have “become more pronounced”. They look at the 3-year growth over the last 3 3-year periods (confused?) - so in Jan 2020, the 3-year price growth had been 9.4% - in Jan 2023 it had been 18.7% - and in Jan 2026 it had been 5.7%. Steady.
On the Halifax numbers, both the North East and the North West saw gains of over 1%, with the North West increasing by 2.1%. The South East, South West, Eastern England and London all dropped over 1%, conversely. This justified their byline.
Not new news, but I would agree with the Halifax point that the divergence in performance is becoming more pronounced. London stock availability is up double digits compared to last year - in the North West, there are actually 7% fewer houses (which sounds like it will support even more divergence over the coming year, to be honest, compared to London).
How about the PMIs, then? Well, the flash numbers were awesome. The composite index was at a 21-month high (when the election was called) of 53.9, services at 54.3, Manufacturing at 51.6 (a 17-month high). Happy days? Well, it came back a shade, but not enough to take the edge off this excellent print. 54.0 for January on services - that’s 9 months in a row above the 50-handle. What did the firms say? Post-budget clarity, of course (posh talk for “thanks for not shafting us too badly apart from the business rates, and usual minimum wage pain”) - but still reports of subdued consumer demand. They blame squeezed disposable income, but the UK is saving 7bn+ net per month at the moment - the high savings rate is arguably a bigger problem. Fix that by making people confident……good luck with that, Sir Keir, given the immense pressure to resign (and no doubt the plotting to get rid - I’ve said before though, be careful what you wish for). The message overall from the services sector though - cautious optimism, and cognizance of the minimum wage bump in April.
The composite print was 53.7, which was the best since August 2024 - so, we will take it. How did Manufacturing and Construction contribute to that? The final manufacturing print was actually 51.8, and alongside that 17-month high there was also a 17-month high in business optimism. New export orders rose for the first time in 4 years! Jobs are still being cut, net, in manufacturing though - although at the weakest rate since job cutting started 15 months ago on the back of the 2024 bloodbath budget. As usual, tariffs continue to be a concern, as does the minimum wage.
Is construction getting better? Well, again the positive part is the slowest reduction in construction activity for seven months. It was a HUGE comeback to print 46.4, which is still a weak number - December’s 40.1 was utter carnage. House building still printed 39.3, though, with us not quite yet at the bottom, it seems, before the planning liberalisation and improved cost control/materials inflation really kicks in. It’s a slow process, as anyone who gets involved with planning knows. Civils printed 40.6, Commercial work printed 48.6 and was almost at par. Stabilisation is the watchword, but again business activity expectations rebounded to an 8-month high. Margins remain under pressure however, and there was a rise in purchasing costs which was the highest for 4 months.
53+ is a great print. Let’s celebrate it. How much is “budget bounceback”? We will find out in February’s figures. One swallow does not a summer make, as I always say before getting excited either way about a single month’s figures. Onwards and upwards.
OK - mortgage rates. The Bank site REALLY is quite cool at visualising all of this stuff - the format here doesn’t lend itself to images particularly well, but if you want to go and have a play the URL is here: https://www.bankofengland.co.uk/statistics/visual-summaries/effective-interest-rates - I’d recommend it to feed your inner geeks.
I’ll hit you with a few of the stats coming from a couple of years back, to today. The average floating rate mortgage a couple of years back was at an effective rate of 6.89% - today that’s 5.43%. The average 2-year fixed went from 4.15% 2 years ago up to 4.95% one year ago, to 4.57% as of today (so this is a blend of mortgages, some would have been 23 months into a 24 month fixed term, for example, which hopefully explains the increase and then the decrease again). Stability on that front has returned, though. The 5-year fixes, though, went from 2.59% 2 years ago on average to 3.31% today. Given that a 5-year fixed at best price is still coming out around 3.75%, it’s obvious that this year that rate will climb significantly as most of the remaining old, really cheap, rates drop off, and we will get closer to 3.6%-3.7% I’m sure.
The average fixed rate going out of the door at the moment is going out at 4.12%. That was 4.78% 2 years ago and 4.44% 12 months ago. Progress. The average floating rate is going out at 4.5%, versus 5.94% 2 years ago. Major progress.
The average fixed deposit over 2 years is currently returning around 3.75% and that’s been steady as anything for 6 months. There’s your benchmark if you are looking for longer term loans from private investors - doubling that sounds pretty good, but a cost of debt at 7.5% (depending on the terms) ALSO sounds pretty good, to me anyway!
There’s a fair few other graphs, but the overarching trend apart from a few of those nuances, is a really nice, steady trickle downwards over the past 2 years. Everyone would have liked it to have been faster - but it hasn’t been, and there’s no reason this year should be particularly different - but as some point, we hit the bottom of the cuts for this cycle (at 3.5% or 3.25%, most likely - especially with what looks like a much better economy on January’s PMIs) - and that trickle down stops and the treacle really sets back in. However - at that stage, we MIGHT just have easier mortgage lending criteria once again on the self-employed - that’s the current push from Reeves, assuming she’s got much time left (I mean Starmer goes, Reeves goes, right? And Angela gets in whoever she wants? I’ll just leave that there). These changes - if the consultation period goes well - will be implemented “later this year”.
The current plan is to pump prime the housing market for the next election. Without Starmer and specifically Reeves, that plan potentially changes. It doesn’t feel very Ang. She will want house prices down (apart from in Hove - and has she paid that stamp yet, anyway? Word is she hasn’t). The jury may now be out on this well timed “mini-boom” - we just need to wait and see. If only Mandelson had left some kind of clue that he might not be whiter than white - maybe sharing a nickname with the devil himself, that would have been useful? Oh - he did, didn’t he?
Mini-political rant over. Gilts and swaps. 3.93% open on the 5-year yield on the gilts, 3.90% close. Mostly explained by the Bank of England and their vote at 5-4 to hold rates (the market consensus was that it would be 7-2, which is a bit like 9-0 because there’s 2 that vote to cut every single meeting). There was speculation in the morning which took the 5-year gilts above 4% yield, but it soon reversed. Looks like any information leakage was incorrect on Thursday, anyway!
The 30s went the other way. The open at 5.267% ended the week at 5.325% on the 30-year gilts. Thus, the yield curve steepened by about 10 basis points in total over the week. Not what we want to see. Why did this “bear steepening” happen? A bit to do with the Bank of England vote, sure, and a lot to do with the UK political speculation. The increased chance of a Labour “spender” (and Reeves not being in 11) is not liked by the long-term bond holders. Sell now rather than roll the dice, is what they’ve said - at the margins.
How about the swaps? We ended the week at 3.694% on the 5-year, compared to 3.618% one month back and 3.846% one year back, as the January 2025 bond movements calmed down. Steady. Note though - only a 20.5 basis point discount on the gilt close, which is the lowest discount we’ve seen for some time. This is the clearest sign so far that the end of the cutting cycle is in sight, even though this next one seems to be happening faster than anyone thought.
OK - I won’t hesitate to get into the deep dive - especially as first up we will be looking closely at the Bank of England MPC report. It was an “update month” - back to sync, now, after the budget disturbed all that. That means some meat to get into. The more recent format (Clear reportage, headings, my summary afterwards) has gone down really well, so I am looking at adopting this on an ongoing basis now.
Theme 1: The Split Decision and the Rate Cut Knife-Edge
Summary: The Monetary Policy Committee (MPC) has delivered a nail-biting decision this month, voting by a narrow majority of 5-4 to maintain the Bank Rate at 3.75%. While the headline rate remains unchanged, the split vote is highly significant; four members voted for an immediate reduction to 3.5%. The report highlights that the restrictiveness of monetary policy has already decreased, following cuts totalling 150 basis points since August 2024.
Looking ahead, the Committee explicitly states that further reductions in the Bank Rate are "likely," provided the evidence continues to support the disinflationary narrative. Market pricing currently implies that the Bank Rate will fall further, reaching approximately 3.3% in the second half of 2026. The MPC acknowledges that judgments regarding future easing have become a "closer call," reflecting the delicate balance between sub-target inflation risks and lingering persistence in wage setting.
The Propenomix Perspective: Well, that was close. A 5-4 split is about as tight as it gets without the Governor having to cast a tie-breaking vote, and it tells us everything we need to know about the direction of travel. We are sitting at 3.75% - a far cry from the pain of recent years - but the fact that four members of the MPC were ready to pull the trigger on a cut to 3.5% suggests the doves are gathering serious momentum.
For property investors, this is the signal we have been waiting for. The "higher for longer" narrative is dead; now it is just a question of pace. The swap markets will likely price in this dovish dissent immediately, which should feed through to fixed-rate mortgages fairly sharply. However, I would urge a degree of caution. The market implied path bottoms out at around 3.3% later this year. That suggests we are nearing the floor of this cutting cycle. If you are sitting on a tracker waiting for rates to return to 1%, you are going to be waiting a very long time. The era of free money isn't coming back, but at least the era of prohibitively expensive money appears to be checking out.
Theme 2: The Manufactured Disinflation
Summary: Headline CPI inflation stood at 3.4% in December, which is notably above the 2% target. However, the Bank’s projection shows a sharp decline is imminent, with inflation expected to fall to 2.1% in the second quarter of 2026. It is crucial to note that this predicted fall is largely driven by fiscal policy rather than organic market cooling. Specifically, the energy bills package announced in Budget 2025 is expected to lower the Ofgem price cap significantly in April.
Underlying measures present a more mixed picture. Service sector inflation - a key gauge of domestic price pressures - is expected to moderate to 3.3% by June 2026, which remains above its pre-pandemic historical average. The Bank estimates that "administered prices" (such as water bills and Vehicle Excise Duty) are currently contributing around 0.5 percentage points to the inflation overshoot.
The Propenomix Perspective: Let's look under the bonnet of these inflation figures, because the headline data is flattering to deceive. Yes, CPI is forecast to drop to near 2.1% by Q2, but let's be honest about why - the government is essentially paying our energy bills again. The report explicitly states that the drop reflects the "energy bills package" and measures from Budget 2025. That is artificial disinflation. It is a fiscal sleight of hand, not a fundamental reset of prices.
For landlords and developers, the "real" inflation numbers are found in the services sector and core goods. Services inflation is still hovering around 4% and is only expected to drift down to 3.3% by the summer. That is the number that dictates your maintenance costs, your management fees, and your insurance premiums. Those aren't dropping just because the Chancellor has subsidised gas prices. Furthermore, firm margins are being rebuilt, which implies that cost pressures are still being passed on. Don't budget for deflation in your operational costs just because the CPI headline looks pretty. Services inflation still makes up 50% of inflation - and I don’t see a particularly low minimum wage increase next year (best guess 3.5%?) - and that will just keep driving services inflation on and on.
Theme 3: The Labour Market Turn
Summary: The labour market is showing clear signs of loosening, a trend that has accelerated since the November Report. The unemployment rate was 5.1% in the three months to November and is projected to rise further, peaking at 5.3% by mid-2026. This rise is partly attributed to weaker demand and the impact of increased employer National Insurance contributions (NICs).
Wage growth, a primary driver of services inflation, is cooling. Private sector regular average weekly earnings (AWE) growth slowed to 3.6% in the three months to November. Forward-looking indicators from the Bank's Agents suggest pay settlements for 2026 will average around 3.4%, down from 4.0% in 2025. The report notes that the vacancy-to-unemployment ratio has fallen further below its estimated equilibrium level, indicating reduced tightness in the labour market.
The Propenomix Perspective: The power dynamic in the jobs market has shifted. We are looking at unemployment drifting up to 5.3% (remember my forecast at 5.7%) and wage growth slowing to 3.6% - the latter being a critical metric for the Bank of England. For the wider economy, this cooling is necessary to keep a lid on inflation. For the property sector, however, it introduces a fresh layer of risk regarding tenant covenant strength. I love the way they completely sidestepped the public sector number of nearly 8% - although there are reportedly 2 pay rises in 12 months in there, so that has blown that up a bit. Still, as they are 18% or so of the workforce, that feels a bit poor, leaving that out?
We have spent the last few years worrying about whether tenants can afford rent increases due to the cost of living; now we need to worry about whether they have a job at all. The report mentions that redundancies are rising and recruitment difficulties have eased. While a 3.4% pay settlement is still a real-terms increase given where inflation is heading, the "pay drift" - the extra cash firms pay to retain staff - has turned negative. The days of double-digit rent hikes being absorbed by a desperate, cash-flush tenant base are likely behind us. If you are referencing tenants today, pay close attention to the sector they work in - those exposed to discretionary consumer spending are cutting headcount.
Theme 4: Productivity Paranoia and the AI Gamble
Summary: The UK's productivity growth remains exceptionally weak, having been flat or negative in recent periods. The report highlights that potential productivity growth is projected to pick up only modestly, remaining below the assumption of a 1% long-run trend. A significant factor in this sluggishness is the legacy of Brexit, which is assumed to leave the level of potential productivity 3.25% lower by the end of 2028.
However, the Bank discusses upside risks involving Artificial Intelligence (AI). Survey data suggests UK businesses are active adopters of AI, and respondents to the Decision Maker Panel expect AI to boost their productivity by around 0.6% per year over the next three years. The Bank posits that if these benefits materialise, it could put downward pressure on unit labour costs and allow for a looser monetary policy stance.
The Propenomix Perspective: I find it fascinating - and slightly terrifying - that our economic roadmap is partially reliant on a "deus ex machina" in the form of AI. The Bank is essentially admitting that the traditional engines of growth are sputtering. We are seeing a structural drag from Brexit that accounts for almost the entire shortfall in productivity against the trend , and investment intentions remain weak. The data since 2007 does bear that out, though, realistically.
So, the MPC is crossing its fingers that chatbots and algorithms will deliver a 0.6% productivity boost. If they are right, great - it means companies become more profitable without hiring more people, which keeps inflation down and allows rates to fall. If they are wrong, and AI is just another cost centre rather than a productivity multiplier, we are stuck with high unit labour costs. For property investors, this matters because productivity is the ultimate driver of real wage growth and, by extension, sustainable capital appreciation. Without it, we are just shuffling deckchairs. We need this AI gamble to pay off, because the underlying physical economy looks tired. Making the cheapest staff redundant, indirectly (current Government policy, although unintended consequences of course) - does also help with productivity, on a technical basis. I’m not convinced it helps the economy as much as “other” forms of productivity, for example technological breakthroughs/research and development.
Next up in this Bank of England quarterly special……the Market Participants survey. This report is given great weight by the Bank - and those who answer are heavyweights, although limited in number.
Theme 1: The Gradual Descent of the Base Rate
The Summary: The latest Market Participants Survey from the Bank of England, conducted in late January 2026, paints a picture of cautious optimism regarding the path of the Bank Rate. The median expectation among the 92 respondents is for the rate to hold steady at 3.75% following the February and March meetings. However, the consensus shifts towards easing shortly thereafter, with the rate expected to dip to 3.50% by April or June, and settling at 3.25% by the end of 2026.
Looking further out, the market anticipates a floor. The median response suggests the Bank Rate will hover around 3.25% through 2027 and into 2029. Interestingly, when asked to identify the "neutral" rate - the theoretical level where policy is neither stimulating nor restricting the economy - the majority of participants pinned it between 3.00% and 3.50%. This suggests that the market believes we are rapidly approaching a state of equilibrium rather than heading back to the historic lows of the previous decade.
The Propenomix Perspective: Let's cut through the noise here. If you are sitting on a variable rate mortgage or waiting to refinance, the message from the City is clear: do not hold your breath for a return to cheap money. The days of sub-2% base rates are dead and buried. I’ve been saying it since 2022, but the evidence has been mounting ever since.
What strikes me about this data is the sheer stickiness of the "neutral" rate expectation. The market is telling us that 3.25% is the new normal. For property investors, this is the vital recalibration point. If the risk-free rate is sitting north of 3%, your yields need to work a lot harder. The spread between the cost of debt and your cap rate has narrowed permanently.
We are seeing a consensus that the cutting cycle is going to be a slow grind - 25 basis points here and there - rather than a plummet. The distinct lack of expectation for rates to drop below 3.00% even five years out is a wake-up call for anyone modelling their leverage based on 2021 economics. Adjust your stress tests accordingly. Remember the 30-year bonds are above 5.25% yield as I write this.
Theme 2: The Inflationary Hangover and Growth Paralysis
The Summary: Despite the projected easing in interest rates, inflation expectations remain stubborn. Participants expect CPI inflation to sit at 2.2% one year from now, slightly above the Bank’s 2% target. While the median expectation drops to 2.1% two years ahead, the immediate outlook suggests inflation is not yet fully tamed.
When assessing risks to the Bank Rate path, respondents overwhelmingly pointed towards upside risks. Specifically, "Risks from inflation expectations" were cited by 51 respondents as a small upside risk, with a further 3 citing it as a large upside risk. Conversely, risks surrounding consumption and labour demand were viewed largely as downside risks.
On the growth front, the outlook is decidedly tepid. The median expectation for UK GDP growth is just 1.10% for 2026 and 1.30% for 2027. Even the long-run potential is capped at a modest 1.40%.
The Propenomix Perspective: This is the section that should make you sit up and take notice. We are looking at a classic "stagflation-lite" scenario. We have growth forecasts that are frankly anaemic - barely scraping past 1% for this year - coupled with inflation that refuses to die quietly.
The survey highlights a significant anxiety: the risk of embedded inflation expectations. For landlords, this is a double-edged sword. On one hand, wage growth (a key driver of services inflation) supports rental affordability. On the other hand, if the Bank gets spooked by sticky CPI, they will keep their foot on the brake longer than the market currently prices in.
The real concern here is the growth figure. A 1.10% GDP expansion doesn't leave much room for error. It implies that tenant prosperity is going to be limited. If the economy isn't expanding, the pool of qualified tenants isn't growing rapidly, and their ability to absorb rent increases is capped. We are moving from a market driven by capital appreciation to one that must be driven by operational efficiency. For what it is worth - simply thanks to the major infrastructure investment plans of the Government, these forecasts are too bearish. This is too private-sector heavy. I’ve been talking about the difficulty of forecasting Government growth since the election, because there are promises and pledges and then there’s what actually happens.
My personal view is that my 2.7% inflation forecast for the end of the year might well be too high, now, but I haven’t seen enough to cut it yet and I can’t imagine cutting it before April. Never say never.
Theme 3: The Gilt Yield Floor and Financing Costs
The Summary: For those watching swap rates, the survey provides detailed expectations for 10-year gilt yields. The median expectation is for yields to sit at 4.30% by the end of June 2026, drifting down only marginally to 4.25% by December 2026 and 4.15% by mid-2027.
This resilience in yields coincides with the Bank’s ongoing Quantitative Tightening (QT). Participants expect the stock of gilts held in the Asset Purchase Facility to reduce by roughly £50 billion annually through to September 2027. This continued supply of gilts back into the market acts as a structural force keeping yields elevated.
The Propenomix Perspective: This is the most critical data point for anyone looking at fixed-rate debt. Forget the Base Rate for a moment - it is the 10-year gilt at 4.30% that dictates the price of your five-year fixed mortgage.
If the smart money sees gilts staying above 4% for the next 18 months, then 5-year fixed mortgage rates are unlikely to drop significantly below the 4.5% mark anytime soon for personal name buy-to-let. Lenders have to price in a spread over swaps, and swaps track these gilt yields.
The continued unwind of the Bank's balance sheet - dumping £50bn of gilts a year back onto the market - creates a supply-side pressure that prevents yields from falling, even as the Base Rate is cut. This is the "term premium" returning with a vengeance. If you are waiting for sub-3.5% fixed rates to refinance a portfolio, the market is telling you that you might be waiting a very long time. I’ve been vocal a number of times about how much I detest the Bank’s approach to QT - so I will spare you one more rant, until the next time the dam bursts!
Theme 4: Sterling Strength and International Capital
The Summary: The survey also canvassed views on the future value of Sterling. The median expectation for the GBP/USD exchange rate one year ahead is 1.35, with a tight interquartile range of 1.3050 to 1.3800. This suggests a moderately bullish view on the Pound against the Dollar compared to historical lows.
Against the Euro, the outlook is for stability. The median expectation for EUR/GBP is 0.88 one year out, implying a relatively steady relationship between the UK and Eurozone economies.
The Propenomix Perspective: A projection of $1.35 is a vote of confidence in the UK's relative stability - or perhaps a vote of no-confidence in the US fiscal situation. To me, Trump is clearly running a weak dollar strategy - but could never say it because it just sounds unpatriotic to a swathe of his voter base. Either way, a stronger Pound changes the dynamic for international capital.
For the past few years, overseas investors have enjoyed a "currency discount" on UK bricks and mortar. As Sterling strengthens towards $1.35, that discount erodes. We might see a cooling of opportunistic foreign capital in Prime Central London - depends just how volatile the Orange Man continues to make it.
However, for the domestic developer, this is good news. A stronger Pound helps mitigate the cost of imported construction materials, which have been a major headache. If we can keep imported inflation down via a strong currency, it might just give the Bank of England the wiggle room they need to deliver those rate cuts we discussed in Theme 1. It is all connected - but as always, the devil is in the details. Let’s keep everything crossed. It also helps with broader macro inflation numbers as well - not just construction - so that could be a further bonus, especially if the trends of last year (other countries cutting prices to avoid shipping to the US and losing money on tariffs) continue.
Chapter 3 in our “Bank Buffet” - the regional summary from the Bank’s Agents who talk directly to businesses. This one I like a lot, because these people in general really know what they are talking about when it comes to their businesses - I’ve seen first hand evidence of this at many a Bank of England regional breakfast briefing.
Theme 1: The "Lacklustre" Economy and the Wage Squeeze
The Summary: The overriding narrative from the Bank’s Agency network is one of a "lacklustre" economy, with contacts reporting that uncertainty has failed to dissipate significantly even following the Autumn Budget. While some sectors are holding out hope for a modest pickup in real activity later in 2026, the current reality is defined by consumer caution and squeezed margins.
Crucially, the heat is coming out of the labour market. Employment intentions have turned slightly negative, with many firms looking to reduce headcount through natural attrition or the adoption of AI and automation. Pay pressures are also easing; the Agents’ pay survey indicates that wage settlements for 2026 are expected to average 3.4%, a marked decrease from the 4% average realised in 2025. This creates a challenging environment for consumption, as households continue to grapple with the cost of living while wage growth decelerates.
The Propenomix Perspective "Lacklustre" is polite central bank code for "stagnant". What jumps out at me here isn't just the lethargy - it's the disconnect between hope and reality. We are seeing a classic wage-price spiral in reverse. Firms can't raise prices because demand is weak, so they are clamping down on pay settlements - dropping from 4% to 3.4% is a significant shift in spending power. Here’s the treacle I’ve been talking about. The number has been much higher, on average, but as we are told when this double public sector pay rise drops out of the numbers, these 4.6% numbers on wage rises will calm right down and these numbers are largely being ignored, for the moment - or at least adjusted, as we would expect.
From an investment standpoint, this is a double-edged sword. On one hand, the inflationary beast looks tamed, which should give the MPC room to manoeuvre on base rates. On the other, if real wage growth is being suffocated by corporate caution and AI-driven "efficiencies", the affordability ceiling for tenants and homebuyers isn't going to lift anytime soon. The economy is effectively treading water, and while that stops us drowning in inflation, it doesn't exactly help us swim towards growth. We are looking at a year where the average consumer feels poorer, even if the headline CPI number looks pretty. Remember, from an ideological perspective - if we DO get change, and it is anyone other than Wes Streeting at the helm, we go to the left and see stronger workers’ rights and more pushing up of benefits and the minimum wage, I’d expect.
Theme 2: The Construction Paralysis
The Summary: The supply side of the property equation is flashing red warnings. Construction activity has weakened further compared to last year, with housebuilding described as having "stalled". The barriers to entry are multifaceted: weak demand, elevated build costs, high funding costs, and persistent planning delays are all cited as major headwinds.
Commercial development remains similarly depressed, with office projects largely paused due to the viability gap created by high construction and financing costs. While there are small pockets of growth in infrastructure and data centres, the broader picture is one of contraction. Most firms do not expect conditions to improve until at least mid-2026, and even then, there are warnings that capacity constraints - specifically skills shortages - could limit the pace of any eventual recovery.
The Propenomix Perspective: I have banged this drum until the skin broke, but here is the Bank of England confirming it in black and white: we are not building enough. In fact, we aren't building much at all. When the Agents report that housebuilding has "stalled" due to planning delays and funding costs, they are essentially telling us that the future supply pipeline has been cut off at the knees. Bad news for Steve Reed - the cat is out of the bag.
This is the most bullish signal for existing asset holders you could ask for. If you own standing stock, your competition is literally failing to materialise. The irony is palpable - policy uncertainty and high funding costs are stopping developers from digging holes, which guarantees a supply shortage in 2027 and 2028. Even if demand picks up, the report explicitly warns that capacity constraints and skill shortages will throttle the recovery. We are baking in a long-term structural deficit of housing stock. It’s a disaster for the country, but a moat for the portfolio. It reminds me of the Build-to-Rent figures that we analysed last week. Looks OK on the surface at the moment but the worst results are yet to come, over the coming years.
Theme 3: The Housing Market Standoff
The Summary: Sentiment in the housing market is described as "slightly firmer" entering 2026, but this improved mood has not yet translated into a tangible increase in transactions or viewings. The market remains heavily weighted in favour of buyers, with supply currently expected to exceed demand in the near term.
Regional disparities are evident. Activity in Central London is particularly weak, with higher-end prices having fallen sharply last year and remaining under pressure. Outside the capital, the outlook is for prices to remain broadly flat or show only modest growth. The high cost of borrowing and the difficulty of saving for deposits continue to be cited as major barriers for younger buyers and working families.
The Propenomix Perspective: This is a classic "buyers' market" in name, but a "nobody's market" in practice. The phrase "supply expected to exceed demand" usually terrifies investors, but you have to look at who is selling. It’s not a flood of distressed assets; it’s a backlog of realistic pricing slowly filtering through.
The London data is the one to watch. When prime Central London prices fall sharply, it often acts as a canary in the coal mine for liquidity - or lack thereof. However, the fact that regional prices are flat in nominal terms means they are falling in real terms. For the cash-rich or those with access to decent financing, 2026 is shaping up to be a year of accumulation. You can negotiate hard because the agents are desperate for a deal that actually sticks. The "slightly firmer sentiment" is just agent-speak for "we aren't quite as miserable as last month". Get building those portfolios folks, and make the most of your Golden Quarter.
Theme 4: The Rental Market and Regulatory Fallout
The Summary: In the private rented sector, rental inflation is beginning to moderate, following the broader disinflationary trend. However, this moderation in price growth is colliding with a structural shift in supply. The Agents report that landlord exits are continuing, driven specifically by the anticipation of changes to renters’ rights in England.
This exit of private landlords is expected to tighten supply further, adding to affordability pressures even as the rate of rental growth slows. Simultaneously, housing costs, particularly rents, remain a dominant concern for households, with younger demographics citing these high day-to-day costs as the primary obstacle to homeownership.
The Propenomix Perspective: It is the definition of unintended consequences - or perhaps entirely intended, depending on how cynical you are about government policy. The looming "renters' rights" legislation is doing exactly what we predicted: scaring the horses. Landlords are exiting, which removes stock from the market just as demand remains robust.
While the report says rental inflation is "moderating", do not confuse a slower rate of growth with falling prices. This is a classic inflationary mistake. If supply tightens because landlords are selling up to avoid regulatory headaches, the floor under rental prices rises. We are seeing a market where the professionalisation of the sector is being forced by attrition. The amateur landlord is cashing out, leaving a gap that - given the stalled construction sector mentioned earlier - isn't being filled. If you can navigate the red tape, the supply-demand imbalance is swinging heavily in your favour.
Last but not least is the Decision Maker Panel data. This one I really rate, because it is a much larger sample size of CFOs from SMEs AND large businesses (2000+). A decent blend. Safety in numbers, literally. Put together to represent the private sector, painstakingly.
Theme 1: The Inflationary Standoff - Expectations vs. Reality
Summary: The latest data from the Decision Maker Panel (DMP), conducted between 9 and 23 January 2026, offers a granular look at how UK CFOs are viewing the pricing landscape. In the three months to January, firms reported that their realised annual own-price growth stood at 3.7%, a figure that remained completely unchanged from the three months leading up to December. It is worth noting that this metric covers firms across the entire economy, rather than limiting the scope to consumer-facing businesses.
Looking forward, there is a marginal softening in sentiment. Year-ahead own-price inflation is expected to settle at 3.5%, which represents a decrease of 0.1 percentage points compared to the previous quarter. Simultaneously, expectations for broader CPI inflation one year out have decreased by 0.2 percentage points to 3.2%. However, regarding the medium term, the three-year-ahead CPI inflation expectations remained stuck at 2.9%, unchanged from the December figures.
The Propenomix Perspective: Here is the issue with the "soft landing" narrative that the mainstream press loves to peddle: the data simply doesn't support a swift return to the old normal. We are seeing realised price growth stuck at 3.7%. This is the actual price at the factory gate or the service counter - not a model, but a receipt. If companies are still pushing through price hikes of nearly 4% annually, the Bank of England has very little room to manoeuvre on aggressive rate cuts.
What really catches my eye is the three-year horizon. CFOs are pricing in CPI at 2.9% three years from now. That is nearly 50% above the Bank’s mandated target. If the people setting the prices believe inflation is structural rather than transitory, they will continue to index their contracts and debt service coverage ratios accordingly. For property investors, this suggests that the era of "higher for longer" interest rates isn't just a catchy slogan - it is the baseline operating environment for the remainder of the decade. Do not underwrite your deals assuming we are going back to 2021 financing costs; the corporate sector certainly isn't betting on it. Seems I’m sitting with the CFOs - and to an extent, when it comes to inflation, expectations are at least as important as reality.
Theme 2: The Wage Growth Persistence
Summary: The survey results indicate a distinct stickiness in remuneration across the UK business landscape. Firms reported that realised annual wage growth held steady at 4.4% in the three months to January, matching the figure from the three months to December. This metric has failed to show the downward momentum that policymakers have been hoping for.
However, forward-looking indicators suggest a potential pivot is on the horizon. Expected year-ahead wage growth dipped slightly by 0.1 percentage points to 3.6% in the three months to January. This projection implies that firms are actively planning for their wage growth to decline by a significant 0.8 percentage points over the coming 12 months. This divergence between current payouts and future budgets highlights a critical tension in corporate financial planning.
The Propenomix Perspective: This is the classic "hope over experience" metric. We have CFOs telling us they are currently handing out 4.4% pay rises , but they promise they will cut that down to 3.6% next year. I will believe it when I see it. Wage growth is notoriously sticky - once you give a raise, you rarely take it back, and inflation-linked pay demands are hard to quell when the cost of living remains elevated. We do have those nuances already identified around public sector pay, though, anyway.
From an investment standpoint, a 4.4% wage floor supports rental affordability, which is the silver lining here. If tenant incomes are rising at this clip, the capacity to absorb rental increases remains intact, particularly in supply-constrained markets. However, this is a double-edged sword. If wage growth stays stuck in the mid-4s, services inflation remains hot, and the Monetary Policy Committee (MPC) stays hawkish. Watch this spread closely - if that predicted drop to 3.6% doesn't materialise by Q2, expect swap rates to tick up as the market reprices the risk of entrenched inflation.
Theme 3: The Silent Contraction in Employment
Summary: While pricing and wages show resilience, the employment data within the DMP survey reveals a more contractionary trend. Firms reported that realised annual employment growth dropped to -0.6% in the three months to January, a deterioration from the -0.4% reported in the three months to December. This indicates an accelerating reduction in headcounts among the surveyed businesses.
Despite the negative realised figures, optimism regarding future hiring has improved marginally. Expectations for employment growth over the next year rose by 0.2 percentage points, settling at -0.2% in the three months to January. While this is an improvement, it remains in negative territory, suggesting that the aggregate view of UK businesses involves a net reduction in workforce size over the coming year.
The Propenomix Perspective: This is the recessionary signal that nobody is talking about loudly enough. We are looking at a realised employment growth of -0.6%. Businesses are shedding staff - plain and simple. When you combine this with the wage data, we are seeing a shift towards a "fewer people, paid more" economy. This is productivity by attrition.
For the property market, this signals a divergence in tenant quality. The secure, higher-paid roles remain safe (and see wage growth), while the marginal roles are being cut. This validates the strategy of targeting quality assets in core employment hubs. The expectation of -0.2% growth next year tells me that expansion plans are on ice. Commercial landlords need to be wary of void risks, but residential investors should focus on the supply-demand imbalance. Even with a slight employment contraction, the chronic lack of housing supply outweighs the demand destruction - for now. But make no mistake - the labour market is cooling, and that usually precedes a broader economic slowdown. It really depends when it stops, and what happens over workers’ rights when we do have some political clarity and certainty - which we certainly don’t have as I’m writing this!
So - with my head still buzzing after our amazing Property Business Workshop last week in London, tickets for the next one are now live. Firstly - after much demand and many DMs, we go where the action is at the moment - Manchester! This is a workshop in huge demand, as we talk about exits. We cover tax, risk, deal structuring and exit options - not just for you, but for those who you will inevitably be dealing with to buy assets, portfolios, companies and the likes from. Can you help with their exit? I have, over the years, often because they have no real formal plan of their own - and added massive value, getting deals over the line. Have you got children or are you planning to leave a legacy? What does your plan look like? Do the kids know about it…….they often don’t, and - spoiler alert - they often don’t want to play ball either!
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. Our VIP dinner was absolutely incredible this week, and got some superb feedback - the upgrade is well worth it. Book your SUPER EARLY BIRD tickets for Wednesday 22nd April, Central Manchester at: https://bit.ly/pbwten10
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.