Interest rates are set to rise if Central Banks maintain the ultra relaxed monetary policy currently being pursued. Rates are likely to be raised within the year in Western economies, with the Euro zone seen as the most hawkish, and the first to nudge rates higher.
If rates are not altered for a year to eighteen months, which most observers are indicating as unlikely, the quantum of debt will increase the interest liability of total revenues.
As the world faces increased inflationary pressures, current emergency interest rates will buckle in favour normal nominal rates, to counterbalance a sustained inflationary cycle.
In Europe, a North South divide is screaming opposite signals. Germany, the powerhouse of Euro land needs higher rates. Spain, Portugal, Ireland and Greece need at least to maintain the status quo. There is a giant experiment underway. No one is certain of the outcome.
And what of the outlook in the U.K? There is no doubt that domestic banks are holding very questionable commercial property loans. Theses loans might be currently serviced but a huge slug of these loans need imminent refinancing. New valuations to sustain refinancing aren’t going to be pretty. If good percentages are these loans are now in negative equity positions, the write downs will be coming thick and fast. This is ignoring the looming re-pricing of risk (margin) and debt costs.
The picture for this year and the foreseeable future will be mixed. Well let shops and grade ’A’ offices within greater London, should perform well in the investment market. But what about a shop in a Northern town, where more than half the high street is empty? Whole sections of secondary stock, could be heading for oblivion.
Whilst Europe seems beset with Sovereign debt problems, interest rises will affect the EU’s market of 300m consumers. The U.K, its banks and the commercial property market, will not be immune to further consolidation of sentiment which is surely on the way.
You may think the current UK’s fiscal policy is harsh. The reality is, after all the planned cuts across the UK plc, our best hope is for the national overdraft, to be no greater than at present by 2015.
