Member Article

Increase in base rate “unlikely to have a negative impact”

James Roberts, Chief Economist, Knight Frank Commercial says:

“An increase in the base rate is often viewed with trepidation by the property industry, but this long expected move, from 0.25 per cent to 0.5 per cent, is unlikely to have a negative impact. I expect the Bank of England will follow the same strategy as the US Fed, and gently apply the brakes while giving lots of advance warning, in order to balance the competing pressures of normalising rates while not derailing growth.

“Consequently, I see a gradual rise ahead, partly to stockpile some future rate cuts should the MPC need to combat another downturn at a later date. Also, the Bank of England is showing some younger homeowners that rates do actually rise, given how long it has been since the country saw an increase - the last UK rate hike in 2007 came a few days after the first iPhones went on sale.

“For commercial property, it should be remembered that debt has played far less of a role in the market in recent years than was the case prior to the financial crisis. Commercial property yields are not strongly correlated to interest rates, so I do not see a small rate increase having much of an impact. Indeed, in some markets the re-emergence of rental growth, such as for offices in districts popular with technology firms, should keep investors active.”

This was posted in Bdaily's Members' News section by Knight Frank .