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Economists have had a bruising few years. Brexit, Covid, inflation shocks and a steady erosion of trust in ‘experts’ have all combined to make economic forecasting feel like a contact sport. So it felt like a good moment to put the discipline back on the stand.
Andrew Teacher [L] and Andrew Wishart [R]
Wishart joined Berenberg around 18 months ago from Capital Economics, moving from a consultancy environment into what he describes as ‘the coalface’ of markets – advising equity investors and traders in real time as data, pricing and sentiment shift.
That perspective is useful, because the UK economy is full of apparent contradictions right now: strong wage growth but weak spending, recovering transactions but stalled housebuilding, falling inflation alongside falling employment. The challenge is joining the dots.
Wishart’s starting point is blunt: this government has had a visible and measurable impact on the economy – more so than most. ‘We’ve had inflation rising and unemployment rising in the UK, more than other major economies, because of that first budget where the government raised the minimum wage and raised the cost of or the tax on employing people.’
Firms faced with rapidly rising wage bills did what firms always do by passing on what they could in prices and cut costs elsewhere, including headcount. That helps explain why inflation stayed sticky and employment has started to fall.
The surprise, however, is growth. UK GDP growth last year was the strongest since the immediate post-Covid rebound in 2022. Output per worker has risen sharply. In Wishart’s view, that reflects companies adapting under pressure, investing in automation, technology and productivity-enhancing capital over several years.
Wishart points out that ‘touchscreens and that sort of thing with supermarket checkouts, that’s these companies’ response to the sharp increase in the cost of employing people.’
One of the biggest misunderstandings in public debate is timing. Economic outcomes today are often the result of decisions made years earlier.
Business investment stagnated for years after the 2016 EU referendum, leaving the UK with less physical and intellectual capital than it would otherwise have had. That drag is real, and Wishart is clear that Brexit has had a measurable cost: ‘the data tells us there has been a bit of a hit particularly when we look at goods exports to Europe, so over this period the EU economy has got a lot more integrated, with a lot more trade between the different countries in the EU, and the UK has failed to be part of that with our exports to European goods dropping back, so it’s definitely a bit of a hit.’
But he also argues that this drag is now fading. More recently, businesses have become more comfortable with post-Brexit trading arrangements, and investment has picked up. That investment is now feeding through into productivity data.
On the scale of the Brexit hit, Wishart sits somewhere between the political extremes. He estimates a loss of perhaps 4-5% of GDP: significant, but partly offset by the UK’s strength in services exports, which continue to perform well globally.
For property and the built environment, this matters. The UK’s global export strength lies in design, engineering, architecture, planning and advisory services. British firms are shaping cities and infrastructure across the Middle East, Asia and beyond, even if that success rarely features in domestic economic narratives.
Housing is where the contradictions are sharpest, with mortgage approvals and transaction volumes having recovered to late-2010s levels: an impressive outcome given mortgage rates remain far higher than pre-Covid norms. But that recovery has not translated into higher housing construction.
There are several reasons:
- Lag effects between market activity and building
- The exit of buy-to-let investors, driven by tax changes and regulation, which has increased second-hand supply
- The end of Help to Buy, which disproportionately supported demand for new-build homes
In London and the south-east, these pressures are amplified by affordability constraints, higher stamp duty and the loss of international buyers. Nationally, markets look healthier; regionally, London remains the outlier ‘where affordability is most stretched.’ The result is a housing system that appears active on the surface but remains fundamentally constrained underneath, which remains a problem for both housebuilders and build-to-rent investors trying to make schemes viable.
Despite the policy headwinds, Wishart still sees a case for UK residential investment.
Demographics are supportive compared with much of Europe, where population decline is becoming a real constraint. However, in the UK, as Wishart states, ‘we had a bit of a baby boom in the 2000s which means that it (population decline) is going to happen later in the UK, so population growth is a bit more supportive. I also think that UK growth and incomes have been disappointing for some time, but because we’re seeing productivity and output come back that should translate into higher real incomes in the medium term. And for all the ills of minimum wage policy and what it’s done on the macroeconomy, it has directly increased the income of part-time and low-wage workers substantially so for rental markets people and people who are buying a home which might be out of reach, there’s probably some pretty solid demand there.’ After the sharp rental inflation of recent years, Wishart expects nearer-term growth of 2–3%, not the 5–7% often assumed in underwriting models. The key variable remains supply. Demand can adjust quickly; supply cannot. Where planning, viability and delivery remain constrained, particularly in London, rental pressure will persist.
If 2024–25 has been confusing for consumer analysts, 2026 may be clearer, but not in a good way.
Employment is now falling, something that rarely happens outside recessions. While real wage growth has been strong, households have chosen to save rather than spend, driven by higher interest rates, political pessimism and a desire for financial resilience after recent shocks. Savings rates are unusually high outside periods of high unemployment, signalling a structural shift in consumer behaviour. Younger households remain relatively confident; older cohorts are far more cautious, reflecting concerns over tax, pensions and wealth.
Wishart expects consumer spending to remain weak through much of 2026, with discretionary spending under pressure. For real estate, that reinforces the appeal of non-discretionary retail and necessity-led formats in the near term.
The macro logic, however, points towards relief.
Wishart expects the Bank of England to cut rates from 3.75% to around 3% by the summer. A phenomenon he argues suggests ‘that this is going to be sufficient to give us quite a significant increase in home purchase demand, in particular this boost from interest rates at the same time as people are going to continue borrowing over a longer period, which has kept down their monthly payments.’
Lower rates won’t solve every viability issue overnight, but they do change the arithmetic — particularly for residential development and rate-sensitive sectors such as build to rent. Crucially, this period of economic weakness is not accidental. It is the mechanism through which inflation is finally brought under control. That, in turn, creates space for looser monetary policy and a more durable recovery.
On fiscal policy, Wishart is pragmatic. The debate around “headroom” can be overdone, but credibility matters. With higher interest rates and large deficits, countries must convince investors they can service their debt. The UK’s credibility was badly damaged by the 2022 mini-budget, and it is Wishart’s view that this must now be rebuilt by being “whiter than white”.
The encouraging sign is that UK borrowing is forecast to fall sharply over the next 18 months, from around 5% of GDP to closer to 3.5%. If delivered, that would be a faster consolidation than seen in the 2010s and would significantly improve the UK’s standing in global capital markets. The challenge, as ever, is delivery — particularly on defence and public services. But lower borrowing also means a lower interest bill, which creates space over time.
For real estate professionals, Wishart’s message is ultimately cautious but constructive: ‘The UK is actually naturally well-placed to benefit from some of the technological improvements we’re seeing at the moment, particularly artificial intelligence, and as a services economy can have pretty solid growth rates. I think near term it might feel like things are a little bit grim, particularly on the occupied demand side of things given what’s going on in employment, but I think the key thing to remember is that this is a necessary evil to get inflation down after sort of five years of core inflation being too high.’
He continues by expanding, ‘we need this period of demand deficiency to subdue those price pressures. That’s what gives us the ability to lower interest rates and ultimately that’s positive. I’d say don’t be too discouraged by the short-term weakness in the economy as it means that we can finally get interest rates down. Both corporates and households balance sheets are in a very strong position this, paired with the UK’s focus on services and the human capital we have here, means we can look forward to stronger economic growth than we’ve become used to.’
In short: ‘In the near term a bit more pain, but ultimately we’re going in the right direction and having this sort of soft patch that we need to finally get inflation back in the bag’
As ever, timing will be everything.