The data — gathered by Hilltop’s COO Tiger Craft — reveal that over the past three months, market expectations for peak BOE rates had increased from 4.75% to 6.5%.
But following a round of softer economic, labour market and inflation data over the past several weeks, markets are now pricing in peak rates of 5.75%.
On the other hand, inflation fell to a 15-month low of 7.9% year-on-year, down from 8.7% in May and below expectations of 8.2%.
Hilltop says the headline inflation and wage data has been masking an unfolding slowdown as the impact of 13 consecutive rate hikes works its way through the economy.
In the labour market, payroll data for June clocked in at minus 9,000 with the unemployment rate reaching 4%.
Availability of candidates for new jobs rose in June at the sharpest rate since the height of the UK’s Covid restrictions in 2020, while job vacancies fell at the sharpest rate since 2009.
And in the construction sector prices for key building materials like steel, reinforced concrete, and timber are currently falling by 20% year-on-year.
According to Hilltop’s analysis, this reflects both a general easing in residential construction activity and gradual re-calibration of supply chains post-pandemic, as well as the disruptions caused by the ongoing Ukraine war.
At the same time, UK rents rose by 5.1% in the 12 months to June, up from 5% in the 12 months to May — and according to Homelet data, 10.4% above year-ago levels.
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Tenant demand continued to grow in June — according to RICS — while available rental stock also continued to fall, with reports of a 35% drop in available rental supply against 2019 levels.
Tiger believes the path is clear for above-trend rent growth over the next three to five years, with opportunities emerging for professional developers and operators of modern and affordable BTR stock.
He referred to the housing stock decline as a “huge gap in the market” for those who can deliver “affordably priced” rental stock.
“Not everybody needs or can afford a cinema and a gym and all of these other amenities that are being put into a lot of the BTR stock we see coming into the market, and more focus on [affordability] is something we're certainly focused on,” he continued.
For the time being, housing construction and delivery appears set to slow materially, with brick inventories — inversely related to new housing activity — up by 58% year-on-year in May.
But Hilltop predict that for the first time in nearly a decade, the UK could record an industry-wide delivery of sub-200,000 units, and that this should be a supportive factor for supply/demand balances in an otherwise challenging market.
“Labour has been a bottleneck in construction and across the economy; I think it's noteworthy that the number of people looking for jobs is now at the highest level since 2009, if you exclude a brief spike during Covid,” Tiger continued.
“To us that's clear evidence of a rapidly weakening labour market.”
Tiger claimed that housing completion delivery could fall by 30% by the end of the next year — which he labelled a crisis.
“I see very few people talking about it in the market and that could ultimately lead to a further spike in house prices at some point down the line.”