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News Release

London

UK Base Rate down to 1.00%

UK Residential Property


London, 5th February 2009 - The Bank of England cut interest rates to 1.00% today, a move which reflects a further deterioration in the economic outlook. January saw a steady stream of downbeat economic data released, including further job cuts across the economy and more insolvencies in the retail sector.
Today’s cut is clearly necessary given the economy is experiencing its worst recession since the early 1980s. Both the European Commission and IMF released gloomy forecasts in January and GDP is set to continue to contract throughout 2009.

UK residential property
James Thomas, Head of Residential Investment at Jones Lang LaSalle comments, “The decision to cut base rates again will be welcomed by homeowners. The market remains extremely weak, transaction volumes are at record lows and house prices continue to fall. Initially, problems in the housing market stemmed from the credit crisis and the drying up in mortgage finance which followed. Now the market is being hit by recession in the economy as well via its impact on jobs, a key factor in determining homebuyer sentiment.”

“Rising unemployment is stifling demand and we expect more house price falls in 2009. The main things to watch for in terms of stabilization in the market will be an unfreezing of the mortgage market and an improvement in the jobs market. Neither of these is likely any time soon. In the meantime, trading volumes will remain thin, though shrewd investors may be able to take advantage of current conditions and pick up bargains from distressed sellers.”

UK commercial property
Fergus Hicks, Head of Forecasting and Economics at Jones Lang LaSalle comments, “Recession in the economy is hitting occupiers hard and will continue to do so throughout 2009. We expect commercial rents will drop around 12% this year and another 10% in 2010. Office demand is being hamstrung by large scale job cuts in the financial sector, while the retail sector is suffering on account of a steady stream of insolvencies, with more to come. The only ray of light has been value retailers, who are taking advantage of consumers tightening their purse strings, and supermarkets, which have announced plans to create jobs this year.”

“As the occupier market turns down the investor market continues to suffer from a lack of bank funding and investor confidence. General concerns over the UK outlook have been reflected in the sharp drop in sterling in January. In the medium term the currency play may be an interesting area where foreign investors buying into UK property can find advantage.”