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Finanze Group - Q1 2023 - Quarterly Economic Update

Apologies for the delay with this, we were waiting for the latest inflation data as it stands - but it came out exactly as we had predicted so we may as well have got this released on the 1st April!

Josh Ellard

Head of Specialist Finance & Research


Considering the political and economic uncertainty, the UK residential housing market has performed as expected in the first quarter of 2023. Rising interest rates and high inflationary pressures have forced buyers to opt for lower-value assets. High deposit requirements and rising prices continue to make it difficult for first-time buyers to break into the market. Meanwhile, a combination of a retraction in the supply of housing and persistently strong demand for homes has ensured competition remains firm.

Estimating the actual change in property prices over Q1 of 2023 proves difficult. Reports from Halifax, the UK’s largest mortgage lender, indicate an annual increase in property prices of 1.6% for the year to March 2023. Furthermore, they estimate the cost of a typical property has risen £2,000 from February to March reaching £287,880. According to figures from Nationwide’s House Price Index, in March 2023 the average house price in the UK fell 3.1% year on year to £257,152.

The turmoil in the financial markets that followed the mini budget caused the housing market to shift last year. The number of mortgages sanctioned for home purchases has remained sluggish since then, at 43,500 sanctioned in February, roughly 40% below the level that prevailed a year ago. Data from Molior London states that house sales and construction in the capital have fallen by 39% in Q1 of 2023. That being said, with an average house price of £511,293, London remains the UK region with the highest cost of real estate. The East and West Midlands both saw price hikes of 0.5% and 1.4%, respectively, in March of 2023. However, other regions have also experienced growth. Reports from Zoopla echo that of Halifax, with a month-on-month fall in prices of 5.3% in February.

Affordability concerns, inflationary pressures, and weakened supply have all contributed to the rising cost of owning residential stock. As such, there has been a substantial increase in demand for rental houses. In the first quarter of 2023, the average rental price in the UK rose by 3.1% to £974 per month, according to data from Zoopla. Concerns remain that the continued political and economic unrest could have a detrimental effect on the real estate market in the months to come. An additional downturn in the market may result from the uncertainty around Brexit and the possibility of an economic crisis. All the while, rising interest rates may make it more challenging for purchasers to obtain mortgages.

For individuals wishing to capitalise on real estate investments, the UK residential property market continues to present a compelling investment opportunity, despite these obstacles.


The first quarter of 2023 saw a mixed performance for the UK commercial property market, with challenges arising from Brexit and an unstable political and economic outlook. Commercial property prices have inevitably fallen as base rate has increased. Commercial prices tend to be an inverse function of the yield and commercial property yields can never be lower than that of base rate. Thus, as the Monetary Policy Committee (MPC) increase the base rate, commercial yields rise, and prices fall. Notwithstanding these challenges, several industries are showing indications of resiliency, and investors appear cautiously hopeful about the market's prospects.

CBRE data shows that in the first quarter of 2023, the total value of commercial property transactions in the UK was £14.5 billion, down from £16.2 billion in the corresponding period of the previous year. At the end of 2020, the value of the non-residential buildings, was estimated to be £899 billion by the Office for National Statistics (ONS). The value of these buildings was expected to have climbed to about £1 trillion by mid-2022.

The market has subsequently taken a large hit during Q4 of 2022, with the value already down 21%, or £210 billion, from its peak in June. If Schroders' estimates are correct, this would amass to the largest UK property crash in history. This decline can be ascribed to a drop in investment in the retail industry, which still faces difficulties due to the development of e-commerce and shifting consumer preferences. A study from Robert Irving Burns (RIB) has attributed a 3.1% fall in sales price per square foot of office buildings, the largest drop of any sector in commercial real estate.

The growth of e-commerce and online shopping has increased demand for logistics and distribution facilities, which is aiding the industrial sector's robust growth. Both domestic and foreign investors are putting money into the construction of new warehouses and logistics facilities, this is a trend that we anticipate continuing in the months ahead.

The retail industry still faces difficulties as many high street stores struggle to adjust to shifting consumer preferences and competition from online businesses. Although there are opportunities for investors who are ready to adopt a long-term perspective, the reduction in investment in this industry is anticipated to persist in the near future.

Generally, investors continue to find the UK commercial real estate market to be appealing, however caution is urged given the continuing uncertainties surrounding Brexit and the overall state of the world economy. Investors should carefully analyse their investing plans, concentrating on industries with strong growth potential and those that are not at risk of being consumed by ever-growing technological advancement.


The UK economy grew at a slower pace in the first quarter of 2023, as the global economic environment continued to impact investor and consumer confidence. However, there are signs of resilience in certain sectors, and the outlook for the rest of the year remains cautiously optimistic.

The UK economy is expected to contract by 0.4 per cent in the first quarter of 2023 to 0.6 per cent below its recent peak in the second quarter of 2022, according to the Office for Budget Responsibility. A decrease in consumer expenditure, especially in the retail industry, and a slowdown in company investment can be largely to blame for weakened growth statistics. Figures from the ONS show the value of exports of goods decreased by £600m (1.8%) in January 2023, with exports of fuel and materials to the European Union falling by £200m. The inflation adjusted figure paints a more palatable picture, revealing exports decreased in real terms by £300m.

Notwithstanding the difficulties, industries such as the service sector, registered significant growth in the first quarter. A significant portion of the UK economy is made up of services, particularly the financial and professional services sectors. The UK's future relationship with the EU is still uncertain, and a no-deal Brexit could lead to significant disruption and uncertainty in the business environment.

The Bank of England's decision to raise interest rates to 4.25% in the first quarter of 2023 added further uncertainty to not just the property market, but the business environment alike. Although the move was aimed at controlling inflation, it will negatively impact both consumer spending and business investment in the short term.

Although the UK economy remained relatively stagnant overall in the first quarter of 2023. The UK continues to draw international investment, especially in the technology and financial services industries, due to solid fundamentals, including, but not limited to, a stable unemployment rate and an advantageous business environment. Investors and businesses should remain vigilant and adapt to the changing business environment to stay competitive and drive growth.

Inflation remained high throughout Q1 2023. The core CPIH annual inflation rate rose from 5.3% to 5.7% between January and February 2023. The CPIH all goods index rose by 13.4% in the 12 months to February 2023, up slightly from 13.3% in January, per recent ONS reports. The much-anticipated inflation figures for March 2023 have stunned many commentators. It was widely anticipated to fall to single figures, following that of the US, where inflation had nearly halved from January to March. The Office for National Statistics has reported a fall to 10.1% for the year up to March 2023, a fractional adjustment from 10.4% in February. The concern remains that this figure is well above the Bank of England's target of 2%. Whilst a large proportion of analysts are anticipating this figure to continue to fall throughout the year, many financial services professionals are now preparing for a further base rate increase until such point where inflation figures begin to return to sustainable levels. Finanze is still of the view that we will see inflation eventually settle just above the target 2% figure in Q4 of 2023, but we will likely see further base rate hikes before we reach that point.


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