Short-term Outlook for Property

While most practitioners may believe that inflation is good for property returns, most analysts know that it is economic growth that fundamentally produces the performance. It is easy to confuse the two, as strong economic growth in the UK is typically accompanied by high levels of inflation. Nevertheless, the distinction helps in identifying the prospects for property performance.

The best overall measure of the state of the domestic economy is, gross domestic product, which has shown positive growth over the last three years. The rate of growth peaked in the second quarter of 1994 and although GDP is still growing at above the long-term rate, the economy is now clearly slowing. It is, however, very unlikely that we will move to recession in the next couple of years. The Government has the ability to provide stimulus either by tax cuts (admittedly constrained), or by interest rate cuts. Although the Chancellor continues to pursue his objective of low inflation, political