Commercial Property Fears Shatter Pound Sterling (GBP) Outlook Today

July 6, 2016 - Written by Toni Johnson

STORY LINK Commercial Property Fears Shatter Pound Sterling (GBP) Outlook Today

The Pound has slipped on the whole today, with recent domestic data doing nothing to encourage investment in the UK.

Confidence in the Pound has crashed recently, with a string of property fund trading suspensions showing just how low an opinion investors currently have of the UK economy.

BoE Financial Stability Report Weighed on Sterling Exchange Rates

Comments contained in yesterday’s Bank of England (BoE) Financial Stability Report have sent the Pound Sterling (currency : GBP) into a downward spiral from which it may take some time to extricate itself.

The BoE missive issued a particularly alarming message regarding the state of Britain’s property market, and more in particular the evident slowdown in London’s commercial property sector. The report noted that there were signs that the uncertainty engendered by the four month long lead-up to last month’s referendum was already having an effect in this key sector. The publication observed that,

‘There has been a sharp slowdown in activity in the UK commercial real estate (CRE) market in the first half of 2016. In 2016 Q1, transactions fell by £6 billion, or 34%, relative to the previous quarter. This was largely driven by a fall in activity in London, where transactions fell by 53%. Monthly data suggest continued falls in April and May.’

The BoE went on to note,

‘Adjustments in commercial real estate markets tightening credit conditions. Any adjustment in CRE markets could potentially be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds.’

The publication then asserted that,

‘Although they have a range of measures to manage stressed levels of redemptions, these open-ended funds could be forced to sell illiquid assets to meet redemptions if conditions persist beyond funds’ notice periods. Any such amplification of market adjustments could affect economic activity by reducing the ability of companies that use commercial real estate as collateral to access finance.’

UK Commercial Property Trusts Declined following BoE Statement

These words sent the shares of UK commercial property trusts spiralling Southwards, with the F&C Commercial Property Trust Ltd (FCPT.L) closing down by 7.18% on the day.

Meanwhile, the Schroder Real Estate Investment Trust Ltd (SREI.L) lost an even greater 9.09% on the session.

The medium term forecast for the Pound is now firmly negative.

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TAGS: Pound Sterling Forecasts