Updated business plan assumptions following economic data releases and sector developments

Market update

U.K. bank rate and inflation

• The BoE voted by a majority of 8–1 to cut U.K.’s base rate for the second time this year, to 4.75% in its November meeting.
• Governor Andrew Bailey suggested that consistent cuts should not be expected but a "gradual approach" remains appropriate, retreating from his optimism at the start of October where he indicated the Bank could become “a bit more aggressive” if inflation continued to fall.
• The change in tone reflects uncertainty surrounding the path of inflation — which dropped to a three-year low of 1.70% in September — now faces risks from increased government borrowing and potential shifts in U.S. trade policies under the new presidency.
• The Bank revised its CPI forecast, suggesting that combined effects of the Autumn Budget will increase CPI by nearly 0.50% at its peak.
• The BoE estimates CPI to rise to 2.70% in December 2025, remaining above the 2.00% target until June 2027. In August, the Bank forecasted CPI to reach the 2.00% target by March 2026.

• CPI rose 2.30% in October, above consensus of 2.20%. The higher than expected reading supports Governor Bailey’s view that a gradual approach to rate cuts remains appropriate.
• The 3-month compounded SONIA forward curve has flattened compared to last month, suggesting floating rates will remain higher for longer.

• The latest forward curve implies that the three-month compounded SONIA rate will be at 4.34% in March 2025, compared to 4.08% a month prior, with the caveat that SONIA forward curves are historically inaccurate predictors of actual future rates beyond six months (see Chatham’s Hairy Chart).

Sterling rates

• Early November marked a volatile period for rates, starting with the Autumn Budget aftermath, the U.S. presidential election, and key economic events.
• Intraday volatility increased in the fortnight following the Budget, with four out of ten days registering intraday movements of at least 10 bps on the 30-year gilt.
• Gilt and SONIA swap yields have fallen since October but remain elevated over a three-month period. Year-over-year, both gilt and swap rates are lower, with the largest difference on the short end of the curve.
  

Capital markets

• In the first sector issuance since the Autumn Budget, Saltaire Finance (Affordable Homes Guarantee Scheme) tapped its 2033 bond, pricing £83.50M on 20 November. Bonds priced at a +47 bps spread to gilts for an all-in yield of 4.885%.

Sector developments

• Rent settlement – The CPI+1% rent standard was confirmed for another five years, offering greater business planning certainty. Deputy Prime Minister, Angela Rayner, also called for rent convergence. If implemented, this policy could unlock additional business plan capacity, especially for housing associations (HA) in areas where rapidly changing property values have diverged significantly from the formula rent. There are still calls for a longer-term settlement and questions about the efficacy of CPI+1% measured against increased national insurance (NI) costs.
• Rising business costs – Increased employer NI will raise labour costs for HAs. This comes at a time when demand for staff in areas like customer support and construction is increasing, driven by the need to meet consumer standards and address development / repair requirements.
• Right to buy – Rayner announced Right to Buy would not be extended to HAs during her address at the Social Housing Annual Conference last week, following indications that discounts would be reduced. These changes aim to preserve more social housing stock and support development and investment plans with increased funds.

Business plan assumptions

Chatham has produced an interim update to the third quarter business plan assumptions to reflect changes in the inflationary outlook and market rates.

¹ Based on rent standard at CPI +1.00%

² Average expected rates for the financial year (April-March)