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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

German inflation falls to 4.5%; UK home sellers increase discounts; mortgage rates ease – as it happened

United States Zoopla United Kingdom Inflation MB (Organization) Richard Donnell The Bank of England
The bull and bear sculptures outside the Deutsche Boerse AG in Frankfurt.
The bull and bear sculptures outside the Deutsche Boerse AG in Frankfurt. Photograph: Armando Babani/AFP/Getty Images

Afternoon summary

Time for a quick recap::

UK house sellers are cutting asking prices to persuade buyers to reach a deal, a report from Zoopla shows.

Mortgage holders are making big changes to their finances to cope with dramatically higher monthly payments, such as cutting pension contributions and downsizing to a smaller property.

But there is some relief, with the average five-year fixed mortgage rate falling below 6% today for the first time since early July.

Inflation in Germany has eased to its lowest since the Ukraine war began, with consumer prices up 4.5% in the last year.

Spanish inflation has risen, though, lifted by higher energy costs.

In the markets, the European Stoxx 600 has hit its lowest level in six months today, while bond prices have also weakened.

Here’s the rest of today’s stories:

Updated

Italian government bond prices are also weakening, pushing the gap between Italy and Germany’s bond yields wider:

The FT attributes the move to the Italian government raising its fiscal deficit targets and cutting its growth forecast for this year and next, meaning higher budget deficits than expected.

Government bond prices have been sliding today, in a selloff that has gripped the European and US markets.

The drop in prices has pushed up the yield, or interest rates, on these bonds, as investors anticipate that interest rates will stay high for longer than hoped.

UK 30-year bond yields, for example, have risen by 16 basis points to 4.948%, up from 4.779% last night, to the highest level since the market panic after Liz Truss’s mini-budget a year ago.

Updated

It’s party conference season in the UK, when the main political parties gather with their supporters for a few days of debate and discussion with their grassroots faithful.

And new data commissioned by Bibby Financial Services shows that small businesses have litttle confidence in UK political parties. Nearly one in four (22%) SMEs are unable to identify the political party that best serves their needs.

The survey also shows “a clear shift to the left” with 33% of SMEs saying that the Labour Party best serves their needs, compared to just 26% choosing the Conservative Party.

They add:

● Ahead of next year’s general election, economic growth and job creation (71%) are the most critical issue for small businesses, followed by tax policies and incentives (68%) and access to affordable financing and loans (46%).

● In terms of specific measures or reforms that the next government could make in 2024, tax incentives is the most popular policy SMEs would like to see (65%), followed by access to low interest loans or grants for business expansion and job creation (57%). Post Brexit, SMEs would also like to see streamlined and simplified regulatory processes put in place, to help navigate compliance requirements (29%).

Updated

The John Lewis Partnership is considering raising as much as £150m by selling and leasing back a dozen of its Waitrose supermarkets, Bloomberg is reporting.

The move comes as the strugging retailer seeks more capital, after it warned this month it will take two years longer to achieve its turnaround goals.

Bloomberg says:

The marketing of the stores will begin next week and mostly includes supermarkets in the south of England with 20-year inflation-linked leases, said the people, asking not to be identified as the information isn’t yet public.

CBRE is acting as agent for the partnership, which owns the upmarket grocer and the John Lewis department store chain, they said, adding that there’s no certainty a deal will take place.

More here: John Lewis to Seek £150 Million From Sale of 12 Waitrose Stores

Updated

The number of Americans filing new claims for unemployment support remains low by historic standards, despite a small last week.

New data from the US Labor Department shows there were 204,000 new initial claims filed last week, an increase of 2,000 from the previous week.

That’s lower than expected, though, as the US jobs market appears to remain robust despite higher interest rates.

Updated

New data has confirmed that the US economy expanded at an annual rate of 2.1% in the second quarter of 2023.

Economists had expected a small rise, to 2.2%. However, upward revisions to nonresidential fixed investment, exports, and inventory investment were wiped out by a downward revision to consumer spending.

John Leiper, chief investment oficer at Titan Asset Management, says interest rate increases have hit consumer spending:

No major changes to the headline GDP number, in line with last quarter and slightly below expectations. The key data reading for me is Q2 personal consumption which came in noticeably below expectations and the prior reading. It also marks the lowest rate of increase since Q2 2020.

This data follows the weaker than expected consumer confidence report on Tuesday and contributes to a growing sense that the consumer, responsible for much of the US economy’s recent resilience, is starting to buckle under the weight of prior monetary tightening.

Updated

This fall in German inflation may hearten the European Central Bank that its monetary tightening programme is working.

Earlier this month the ECB lifted eurozone interest rates to record highs, pushing up its deposit rate for the 10th consecutive time, to 4%.

German inflation falls to lowest since February 2022

Just in: Inflation in Germany has fallen to its lowest level since Russia’s full-scale invasion of Ukraine last year.

The inflation rate in Germany is expected to be 4.5% in September, statistics body Destatis has reported, down from 6.1% in August.

The last time Germany’s inflation rate was lower than this was in February 2022 – the month the war began - when it stood at 4.3%.

Food prices were 7.5% higher than a year ago, but energy prices were only 1% higher.

Core inflation (which strips out food and energy) is expected to have fallen to +4.6%, from 5.5% in August.

Updated

Investors are poised for the latet German inflation data, due in just a few minutes.

But there’s already been encouraging news – inflation in the western German state of North Rhine Westphalia fell to 4.2% this month from 5.8% in August, data released this morning shows.

That is “a huge move that will give the ECB confidence that its decision to all but declare an end to the tightening cycle a couple of weeks ago was correct,” says Craig Erlam, senior market analyst at OANDA.

Eurozone economic sentiment has fallen for a fifth consecutive month, new data shows, adding to concerns over Europe’s economy.

Optimism in services, retail and amongst consumers slipped, but there was a pick-up among industrial companies, according to the European Commission’s monthly survey.

The economic sentiment index fell to 93.3 points in September, down from 93.6 in August, but higher than economists expected.

Spending on petrol and diesel fell in the last week, as motorists were hit by higher prices at the pumps.

The Office for National Statistics has reported that debit card spending on “automotive fuel” fell by 3 percentage points in the week to 24 September 2023.

That is the fourth week-on-week decrease in a row,

That came as average fuel prices increased by 2 percentage points in the week to 17 September, the ninth consecutive week-on-week increase.

Updated

Today’s drop in average five-year fixed mortgage rates below 6% shows that the crisis in the market is “turning the corner”, says Myron Jobson, senior personal finance analyst at interactive investor:

Average mortgage rates continue to pare back from lofty heights seen in July following sizeable falls in inflation, which could mean that interest rates might not peak as high as feared. This is a confidence booster for those looking to take out a mortgage soon.

The latest fall in rates is another sign that the mortgage crisis which has stopped many from participating in the property market this year is turning a corner. The metrics used to price fixed-rate deals give lenders the green light to lower the cost of fixed-rate mortgages in anticipation of a future where borrowing costs will be reduced. The burning question is, how low will mortgage rates go and how fast will they fall?

While the positive news on the mortgage front is welcome, the property market remains in a state of flux. Would-be buyers and homeowners alike still face much higher monthly repayments than previous years – and a return of ultra-low mortgage rates aren’t forthcoming. Falls in mortgage cost could also keep house prices elevated.

Updated

The owner of discount retailer Poundland has lowered its profit outlook for the second time in less than three weeks.

Pepco Group blamed an “increasingly challenging” trading environment in its core markets of Central and Eastern Europe.

Executive chairman Andy Bond told analysts that a promotion of “Barbie” merchandise helped deliver good underlying sales growth in July, like-for-like sales in the main Pepco business were negative in August and further deteriorated in September.

Bond also blamed a loss of focus from management. He took over running the company earlier this month after CEO Trevor Masters resigned.

The UK’s FTSE 100 index is also falling today, down 50 points or 0.65% at 7544 points.

Housebuilder Barratt (-6.2%) are the top faller, while gambling groups Entain and Flutter are also in the fallers following 888 Holdings cutting its full-year guidance this morning.

The pound, though, is finally rallying after six days of losses – it’s up half a cent at $1.219, up from six-month lows yesterday.

Updated

European stock markets hit six-month low

European share values have dropped to their lowest level in six months.

The Stoxx 600 index, which tracks companies across continental Europe and the UK, has fallen by almost 0.5% this morning to 444.7 points, the lowest since the end of March.

The Stoxx 600 index over the last 12 months
The Stoxx 600 index over the last 12 months Photograph: Refinitiv

Shares have been pulled down by a series of factors. One is concerns that interest rates will remain higher than hoped, with the US Federal Reserve likely to push through one more hike before the end of the year.

There are fears that rising oil prices will push up inflation, with Brent Crude approaching $100 per barrel for the first time since last November.

China’s faltering economic recovery, and fears of a US government shutdown this weekend, are also worrying investors.

Weak European economic data has also hurt markets, including falls in German and French consumer confidence this week, with concerns that Germany’s economy will shrink this year (see earlier post).

Updated

A group of Germany’s leading economic institutes are predicting that its economy will shrink this year as high interest rates and inflation weigh on growth.

Five economic institutes now estimate that German GDP will contract by 0.6% during 2023, down from their spring forecast of 0.3% growth.

They estimate that the economy will contract by 0.4% in the July-September quarter, followed by 0.2% growth in Q4.

Germany’s economy stagnated in Q2, having shrunk for the previous two quarters.

Oliver Holtemoeller, head of the macroeconomics department at the Halle Institute for Economic Research (IWH), explains:

The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected in spring.

Growth of 1.3% is expected in 2024, rising to 1.5% in 2025.

Updated

UK 5-year mortgage rate drops below 6%, first time since July

UK mortgage rates have dropped again, data provider Moneyfacts reports, with the five-year fixed mortgage below 6% for the first time since July.

They say:

The average 2-year fixed residential mortgage rate today is 6.50%. This is down from an average rate of 6.53% on the previous working day.

The average 5-year fixed residential mortgage rate today is 5.99%. This is down from an average rate of 6.03% on the previous working day.

Lenders brought more products onto the market too, Moneyfacts adds:

There are currently 5,474 residential mortgage products available. This is up from 5,409 products the previous working day.

Updated

Ryanair cuts winter flight schedule due to plane delivery delays

A Ryanair plane parks at the airport in Weeze, Germany.

The budget airline Ryanair has been forced to cut some flights this winter due to delays receiving 737 Max jets from Boeing.

Yesterday, Ryanair said production problems meant Boeing would only deliver 14 of the 27 aircraft due by late December, with disruptions likely to linger through mid-2024.

It will reduce the number of aircraft it planned to base at several airports across Europe, including East Midlands Airport and Dublin Airport.

Ryanair boss Michael O’Leary said:

We are working closely with Boeing and their supplier, Spirit, to minimise these delivery delays.

It is deeply regrettable that production problems in Wichita and in Seattle have yet again delayed Boeing’s contracted deliveries to Ryanair this winter.

We are in regular dialogue with Boeing, and our primary objective is to ensure we get delivery of all 57 contracted B737 aircraft before the end of May 2024, so that Ryanair’s fleet can grow to over 600 aircraft for what will be our largest ever summer flight programme.

Updated

Inflation in Spain has risen to a five-month high, new figures show, driven by pricier energy.

Spanish consumer prices index rose by 3.5% in the year to September, up from 2.6% in the year to August.

The rise was driven by an increase in electricity prices this month (they had fallen in September 2022), and a rise in fuel prices this month.

On an EU-harmonised basis, annual inflation was slightly lower – rising to 3.2% from 2.4% in June.

On a monthly basis, consumer prices rose by 0.2% in September, a slowdown on the 0.5% monthly rise in August.

Core inflation weakened to 5.8%, from 6.1%, which should cheer policymakers that underlying inflation pressures are easing.

Shares in the online betting group 888 Holdings, the owner of William Hill, have dropped over 11% after its warning that core profits will not hit expectations.

888 has reported that its performance has been “mixed”, with revenues in the third quarter of 2023 expected to fall around 10%.

It blames the “ongoing significant impact from compliance changes implemented in dotcom markets”, with customer activity and revenues recovering slower than expected.

Profit margins were also hit by “customer friendly sports results” – a point which rival Entain made earlier this week.

Updated

UK pub chain Mitchells & Butlers has some encouraging news for customers, and shareholders this morning – inflationary pressures are easing.

Mitchells told the City in a trading update this morning that “cost headwinds are abating” and remain at the bottom end of its previous expectations.

Mitchells has also reported a rise in annual sales growth, as customers kept heading to the pub despite the cost of living squeeze.

In the year to 23 September 2023, like-for-like food sale rose 8.6% while drinks sales rose 9.9%, meaning M&B expects its results to be “at the top end of consensus expectation” this year.

Phil Urban, M&B’s chief executive, says:

We are delighted to have continued our strong like-for-like sales performance through the fourth quarter, underpinned by volume growth and reflecting increasing out-performance against the market.

Shares in M&B are 2.5% higher in early trading.

Updated

Lower mortgage rates are more likely to improve affordability, and buying power, than falling house prices in the next 12-18 months, says Zoopla.

They predict average mortgate rate will soon drop back below 5%, now that the Bank of England left interest rates on hold last week.

Zoopla says:

Across the UK’s biggest lenders, the average 5-year 75% LTV fixed rate. loan currently averages 5.1%. We expect mortgage rates to continue to fall slowly in the coming weeks into the high 4%’s.

However, uncertainty remains over the trajectory for inflation and how quickly this will fall back to the Bank of England’s 2% target.

Our consistently held view is that mortgage rates over 5% mean lower sales and year-on-year price falls. The closer mortgage rates get to 4% the more buyers will come back into the market, supporting sales and pricing levels.

UK mortgage payers making big changes to meet higher payments

A separate report today shows that mortgage holders are making big changes to their finances to cope with dramatically higher monthly payments.

That can includes cutting pension contributions and downsizing to a smaller property, my colleague Rupert Jones reports.

Faced with either the immediate reality of higher mortgage costs or the prospect of a sharp rise in payments once an existing deal has expired, more than 1,000 mortgage holders were asked this month by KPMG whether they had either already taken, or were considering taking, action to deal with this.

About 18% said they had raided their savings in order to reduce what they owed, while 25% said they were considering doing this.

When it came to moving at least part of the mortgage over to interest-only, so the household clears just the interest that accrues on that part, thereby cutting monthly repayments, 16% said they had already done this, and 24% said they were thinking about doing so.

Updated

Zoopla’s latest data suggests recent falls in mortgage rates – as well as price discounts – are encouraging some potential buyers back to the housing market.

Victoria Scholar, head of investment at Interactive Investor, says

Zoopla said enquiries about properties listed on its website rose by 12% over the past four weeks, suggesting that the worst could be over for the UK’s struggling housing market.

A combination of the back-to-school season, disinflation, soaring rents, cooling house prices, and an improvement in mortgage offers have prompted potential buyers to revisit the property purchase market.

With the Bank of England keeping rates on hold and dwindling demand for borrowing, mortgage brokers are having to price their rates more competitively in order to attract customers.

Year-on-year property enquiries are still down, and mortgage rates are up, but dynamics have become slightly more favourable for potential mortgage holders in recent weeks. Seasonally, September is typically seen as a good month for the property market after the end of the summer lull and before the festive season kicks in, prompting more buyers to strike while the iron is hot, particularly with house prices dropping at their fastest pace in 14 years in August, according to Halifax.

Updated

Zoopla also reports that house prices have fallen by 0.5% over the last 12 months.

That’s a lower estimate than Nationwide, which has reported prices falling by 5.3% in the last year, the fastest pace in 13 years.

Zoopla says:

Many households have delayed moving while more fixed-rate loans, tougher affordability testing and a robust jobs market means there are few forced sellers in the market.

Our index has recorded a 0.5% price fall over the last year - the first annual decline for over a decade, since June 2012. House price falls are concentrated in southern England where higher mortgage rates have had a bigger impact on pricing.

A map of UK house prices

Updated

Introduction: UK home sellers increase discounts to secure deals

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house sellers are cutting asking prices to persuade buyers to reach a deal, as high interest rates continue to depress the market.

A new report from Zoopla this morning shows that buyers are managing to secure reductions even as the normally busy autumn selling season begins.

The average discount to the asking price rose to 4.2% in September, the highest since 2019, which equates to a reduction of £12,125.

In London and the South East, selling prices are 4.8% below asking prices, compared to 2.8% for the rest of the UK.

One in 10 house prices dropped by more than 10 per cent before finding a buyer, reports Richard Donnell, research director at Zoopla.

This highlights how the housing market is continuing to adjust to higher borrowing costs. The 14 increases in UK interest rates since December 2021 have left people with much less buying power.

Zoopla points out:

The more than doubling in mortgage rates since last 2021 together with increases in the cost of living represents a big adjustment for home buyers and the wider market.

Its report also found that demand for homes has risen for the first time since the Spring, with enquiries to estate agents up 12% since the August bank-holiday weekend.

Buyer demand at UK estate agents
Buyer demand at UK estate agents Photograph: Zoopla

But, that still leaves demand still remains a third lower than a year ago.

Nathan Emerson, CEO of Propertymark, says buyers and sellers are finding an ‘affordable middle ground’:

“This recent report reiterates what our member agents are telling us.

Last month there was a 29% rise in the number of new properties for sale which shows many people are continuing to find an affordable middle ground when coming to the market and negotiations well underway.

The agenda

  • 8am BST: Spanish inflation data for September

  • 9am BST: ECB Economic Bulletin

  • 10am BST: Eurozone consumer confidence for September

  • 1pm BST: German inflation report for September

  • 1.30pm BST: US GDP (final estimate) for Q2

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