51乱伦

AI-hype and strong US corporate earnings pushed global stock markets this week. Three months into the US-Iran war, equity investors appear unbothered 鈥� but the economic scarring is becoming harder to ignore.

The dilemma the conflict poses to central banks was encapsulated by the closely watched UK Services Purchasing Managers  from S&P Global on Wednesday. Firms are laying off workers at the fastest rate since February, all the while attempting to pass on the rising costs of fuel, energy and transportation to consumers. Policymakers at the Bank of England may eventually be forced into choosing whether to raise rates to maintain price stability or loosen policy to shore up the job market.

Governor Andrew Bailey said  last week that the BoE would tolerate inflation running above target for a while, but 鈥渢hat tolerance would weaken if signs of second-round effects begin to emerge.鈥� Second-round effects might mean workers securing compensating pay rises or inflation expectations becoming unanchored. With unemployment rising and expectations , neither looks imminent.

Risk aversion

The construction sector will be among the hardest hit. Contractors and developers face weak demand due to higher borrowing costs 鈥� particularly in the residential sector 鈥� alongside steep increases in costs for fuel and raw materials.

The , published yesterday, contracted at the fastest rate since the pandemic during May. Excluding the pandemic, it was the steepest contraction since March 2009. The residential sector was the weakest performer again, but the commercial sector isn鈥檛 far behind 鈥渞eflecting risk aversion among clients in response to geopolitical tensions and rising inflationary pressures.鈥�

The downturn in vendor performance was the sharpest since December 2022 amid widespread reports of international shipping delays and some raw material shortages. Almost two-thirds of the survey panel signalled a rise in their input prices, mostly linked to fuel surcharges, rising energy costs and higher transportation bills. Subcontractor charges increased to the greatest extent for nearly three-and-a-half years.

Spooking investors

House prices are holding up relatively well. Average home values dipped 0.1% in May, matching April鈥檚 decline, Halifax this morning. That brings the annual change to 0.5%.

Conditions have improved in the past fortnight as several of the larger lenders have cut mortgage rates. Whether that run continues will depend on news from the Middle East and any further domestic political volatility.

As expected, Andy Burnham last night confirmed he would seek to replace Keir Starmer as prime minister should he win the by-election in Makerfield. Government borrowing costs eased last month after he committed to stick to the established fiscal rules. That theme has continued 鈥� this morning's FT that Burnham is being advised by former Treasury minister Jim O'Neill on how to boost infrastructure spending without spooking the bond market.

UK economic growth is expected to weaken to 0.9% this year as renewed inflationary pressures squeeze real incomes, according to . Growth should pick up to 1.1% in 2027, 鈥渉elped by the normalisation of global energy prices and a gradual improvement in trade and financial conditions,鈥� the group said.  

Infrastructure exposure

The war has thrown energy security into the spotlight, but its role in reshaping real estate investment was established well before the closure of the Strait of Hormuz.

A new 51乱伦 report published this week, From Real Estate to Real Assets, examines how traditional property investors are widening their strategies to include infrastructure 鈥� particularly energy. Among the key takeaways is that power availability is becoming as fundamental to asset performance as location or lease terms.

UK data centre electricity demand alone is forecast to rise 160% by 2030, while broader electrification of buildings and transport is making energy procurement a strategic issue for real estate operators of all kinds.

Infrastructure fundraising hit a record $289 billion last year. A quarter of respondents to our Active Capital Survey already have, or plan to have, infrastructure exposure by the end of 2026 鈥� those investors represent more than a third of total AUM surveyed.

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