Here are this week’s highlights in the UK economy. Property
Base Rate Increase
Following Thursday’s announcement from the Bank of England, many prospective investors will be concerned about the effect on their purchasing power. It is widely thought that many lenders anticipated rate increases and have priced their current products as such. Thus, we expect the cost of fixed rate mortgages to remain stable, if not continue to follow their current downward trajectory. The cost of debt, however, is still far higher than that of 12 months ago, giving cash buyers a comparative advantage. Our initial analysis suggested that those currently not on a fixed rate could be looking at increased mortgage costs of £78 per month. This is based on a mortgage with 25 years remaining and an average house price of £268,788 as confirmed by Nationwide’s House Price Index (HPI) for October 2022.
Fall in UK house prices
Most analysts and commentators are all in agreement that we will see a downward trend in property prices over 2023. Rightmove have released data showing a fall in the asking price of UK homes of 2.1%. Halifax have confirmed this week that they are expecting an 8% correction in the market. If Halifax’s estimates are correct, we would see a mean reduction in property values of £21,503 across the UK. The magnitude of the correction is up for debate, although it is difficult to be optimistic as the cost-of-living crisis continues to put pressure on household incomes. It is worth noting that house prices have increased by 22% to record levels over the last year. Therefore, it is highly unlikely homeowners will see their capital gains eroded entirely.
Positive news emerged from the ONS over the last week regarding inflation as CPI fell from a 40 year high of 11.7% to 10.7%. Although positive, Andrew Bailey, Governor of the Bank of England, has confirmed there is still plenty of work to be done with price levels still increasing at alarming rates. The concern now is the growing rate of unemployment. As the number of active participants in the labour market declines, employers are forced to increase wages to fill vacancies. Such pay rises only increase the pressure on prices through wage-push inflation.
Retail sales figures confirm recession woes
There has been a decline in sales volumes of 0.3% as published by the ONS, confirming fears of a tightening in consumption habits. This is a stark contrast to the expected 0.3% increase that many experts had predicted. Black Friday failed to produce its usual boost and the World Cup did little to help increase spending. External issues including ongoing industrial action within the Royal Mail and transport services can be partly to blame for the disappointing sales figures.
As we enter one of the most disruptive weeks of industrial action that the UK has seen for many years, all eyes remain on Downing Street ministers and how they will resolve the issues surrounding pay. In the time period from August to October the public sector has seen average monthly wage growth of 2.83%, whereas in the private sector the growth experienced was higher at 6.63%. The government now faces a difficult balancing act between minimising the effect of declining real wages, controlling inflation levels and maintaining austerity to reduce the large deficit in public finances.
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