Afternoon summary
Time for a quick recap.
UK house prices fell in July for the fourth month running. Halifax reported that prices dipped by 0.3%, or around £1,000, last month, and were 2.4% lower than a year ago.
Halifax also reported that first-time buyers were seeking out smaller properties, as rising interest rates hit affordability.
Kim Kinnaird, director at Halifax Mortgages, explained:
“In particular, we’re seeing activity amongst first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs.
Halifax predicts prices will decline gradually through the year, rather than crashing.
LSL Property Services, one of the UK’s largest providers of mortgage and valuation services, issued a profits warning, due to the impact of rising interest rates on the housing market.
Germany’s economic problems have continued, with industrial production droppin gby 1.5% in June.
Sentix labelled Germany ‘the sick man of the eurozone’.
Back in the UK, the London economy and parts of the south-east have become more attractive to investors than the rest of Britain over the past year, according to a study.
The world’s biggest oil firm, Saudi Aramco, announced a near-40% fall in profits after a decline in crude oil prices and weakening margins in refining and chemicals.
One of Britain’s biggest boiler makers is to start manufacturing electric heat pumps to keep pace with what it describes as the biggest transformation since the switch from coal to gas devices in the 1930s.
A senior executive at HSBC has apologised after saying the “weak” UK government had caved in to the US in its approach to doing business with China.
In the US, a central bank policymaker is warning that more interest rate hikes will likely be needed in order to lower inflation to the official 2% target.
Fed Governor Michelle Bowman will tell a “Fed Listens” event in Atlanta that she is looking for more signs that inflation is on a ‘consistent’ path downwards,
In prepared remarks for the event, Bowman says:
“Given these developments, I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the [2%] goal.
“I will be looking for evidence that inflation is on a consistent and meaningful downward path as I consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level.”
US consumer price inflation dropped to 3% in June, a two-year low.
French-Israeli telecoms billionaire Patrick Drahi has told debt investors today that he felt “shocked” and “betrayed” by an ongoing corruption probe in Portugal.
Drahi also insised that the investigation would have no impact on Altice International’s results, Reuters reports.
Drahi said the probe, which led to his right-hand man and Altice co-founder Armando Pereira to be placed under house arrest last month, had come as “a shock and as a huge disappointment to me”.
He added:
“If these allegations are true, I feel betrayed and deceived by a small group of individuals, including one of our oldest colleagues.”
The probe came at a tricky time for Drahi, who needs to manage the mountain of debt he built his empire on at a time of increasing interest rates.
Among other investments, he holds a 24.5% stake in UK telecoms group BT.
A Portuguese court last month ordered Pereira be placed under house arrest while an investigation into alleged corruption at the group’s local subsidiary is conducted, his lawyer said at the time.
Pereira, regarded as Drahi’s most trusted lieutenant, has denied any wrongdoing.
Updated
UK recruitment company PageGroup revealed today it has cut almost 450 jobs this year, after a slowdown in demand.
PageGroup told shareholders that the “challenging conditions” seen towards the end of 2022 continued into the first half of 2023.
It said “lower levels of both candidate and client confidence” meant companies are taking longer to choose candidates, who themselves are more reluctant to accept offers.
PageGroup says:
Reflecting the uncertain macro-economic conditions, temporary recruitment outperformed permanent, as clients sought more flexible options.
In line with these conditions, we reduced our fee earner headcount by 558 (-8.0%) in the first half, with reductions in all regions. Our total headcount of 8,572 is 448 (-5.0%) lower than at the end of 2022
Pretax profits have dropped by almost 45% this year, to £63.3m from £114.5m in January-June 2022.
More pubs in Britain went bust between April and June than in any quarter for more than a decade, new research today shows.
Closures jumped in the last quarter, as rising costs were exacerbated by the effects of the cost of living crisis on customers.
Price Bailey, the accountancy firm, calculated that 223 pub businesses had entered insolvency in the second quarter of this year, up from 200 between January and March.
Since last summer, 729 pubs have gone under, 80 per cent more than in the previous 12 months. The Times have more details.
🇬🇧 Record number of pubs are forced to call last orders https://t.co/H5ez8cUMkG
— Neil Saunders (@NeilRetail) August 7, 2023
Alex Jay, partner at Stewarts, says this shows the troubles in the UK economy:
“These statistics on record pub closures are a stark reminder of the real state of the economy, despite talk of avoiding a technical recession.
There will be a knock on – vicious circle - effect too. This is another property generating no income for its landlord, and drawing no customers to high streets already depleted by working from home practices.”
As well as cooling the housing market, higher interest rates are likely to push the UK into recession by the end of the year, warns Capital Economics this morning.
Ashley Webb, their UK economist, explains:
With CPI inflation soon to fall below average earnings growth, the cost of living crisis appears to be coming to an end. But households won’t suddenly stop feeling the pinch.
We suspect the level of real household disposable income will remain below where it was before the pandemic until early 2025. And with the full effect of higher interest rates yet to feed through, we still think the economy will enter a mild recession later this year.
Shares in UK housebuilders have slipped today, after Halifax reported that house prices fell again, by 0.3%, last month.
Persimmon, Britain’s largest housebuilder, are down 1.1%, while Taylor Wimpey have lost 1% and Barratt Development are 0.6% lower.
Persimmon are due to release financial results for the first-half of this year on Thursday.
Matt Britzman, equity analyst at Hargreaves Lansdown, says:
Housebuilder Persimmon is battling the tricky housing market, latest news from Halifax pointed to a 2.4% drop in prices over July in a third straight month of declines.
Margins are under pressure from higher costs and falling prices, results should shed light on the impact and give an update as to whether it’s on track to deliver the close to 9000 completions expected over the year.
UK Housing Prices Extend Decline 📉
— OpoFinance (@OpoFinance) August 7, 2023
Halifax house price index dropped 2.4% YoY in July, marking 4th straight decline.
The average UK house is now at £285,044, down from a peak of £293,992 last year.
Market eyes further fall in 2023, but prior gains remain 📉🏘
#UK #Prices pic.twitter.com/K23UzyxdOh
In another blow to Germany’s economy, industrial production dropped more strongly than forecast in June.
Production fell by 1.5% compared with the previous month, the federal statistics office said on Monday. Analysts polled by Reuters had expected a smaller decline, of 0.5%.
🇩🇪 Real industrial production in Germany is down 1.5% in June MoM and 1.7% YoY (provisional results)
— Nikolay Kolarov, CFA (@libertniko) August 7, 2023
Key drivers:
➡️ automotive industry -3.5% MoM
➡️ construction -2.8% MoM
Positive development was observed in pharma industry (+7.9% MoM). Outside of industry, energy production… pic.twitter.com/gA9jzOrpZi
This latest drop in German industrial production in June is another illustration of the country’s ongoing stagnation, says ING’s global head of macro, Carsten Brzeski.
Brzeski adds:
Industrial production is still more than 5% below its pre-pandemic level, more than three years since the start of Covid-19.
Production in energy-intensive sectors escaped the negative trend and increased by 1.1% MoM in June, still down by more than 12% over the year.
We looked at this issue in more detail in yesterday’s Observer:
Updated
Germany becoming the ‘sick man of the eurozone’, warns Sentix
Investor morale in the euro zone has picked up this month, but remains rather weak.
German research group Sentix reports that its Investor Confidence Index rose this month, ending a three-month slump.
It increased to -18.9 points in August from -22.5 in July, better than expected.
Sentix warned, though, that Germany is becoming the ‘sick man of the eurozone’, as its economy fails to grow in recent quarters.
The largest economy in the euro zone is becoming the sick man of the Eurozone and is weighing heavily on the region. The overall index for Germany falls for the fourth time in a row to -30.7 points.
At -18.9 points, the #sentix economic index for the Eurozone is 3.6 points higher than in July. The overall index thus stopped its nosedive. Germany is becoming the sick man of the Eurozone. More on: https://t.co/zycjJe6DTB pic.twitter.com/qIaS5sA1eK
— sentix (@sentixsurvey) August 7, 2023
Updated
LSL Property Services issues profit warning as interest rate rises hit mortgage market
The slowdown in the UK property sector has hit earnings at one of the UK’s largest providers of mortgage and valuation services.
LSL Property Services, which provides services to mortgage intermediaries and estate agent franchisees, warned profits will miss expectations this year.
LSL told shareholders that the Bank of England’s large increase in interest rates in June had hit demand.
The BoE lifted bank rate by half a point in June, from 4.5% to 5%
In its results for the first half of this year, LSL says this increase has cooled demand (even before the latest rate rise to 5.25% last week). It says:
As expected, the Group’s results over H1 were impacted by significant changes in the mortgage market, particularly our Surveying Division, as well as Financial Services. We had expected some of these changes to moderate during H2, with improved consumer sentiment and more stable lending conditions
However, the larger than expected increase in the Bank of England base rate announced in June has had a material impact on the mortgage market, reducing the level of Purchase and Remortgage activity and increasing further the proportion of Product Transfer business (where customers stay with their existing lender on completion of their mortgage scheme).
Second-half profits are now expected to be lower than the company’s previous expectations, LSL adds.
Shares in LSL are down 11% this morning.
In the City, the UK’s FTSE 100 index of blue chip stocks is down around 0.5% or 41 points in early trading, at 7521.
AJ Bell investment director Russ Mould says the possibility of further increases in US interest rates are dampening the mood, after last Friday’s US jobs report:
“Officials at the Federal Reserve are suggesting they are not yet done in their battle with rising prices. Having been slow to respond to what they believed was transient inflation in 2021, it seems central banks like the Fed are in no mood to be complacent.
“US jobs data which showed earnings rising faster than expectations on Friday will only strengthen this resolve.
The big move higher in UK rates continues to have a dampening effect on the UK housing market, Mould adds:
Figures from Halifax unsurprisingly showed a fourth straight month of declining prices. With mortgages becoming less affordable it is proving increasingly difficult for people to get a leg up on the property ladder or even join the ladder in the first place.
“Housebuilder Taylor Wimpey was among the top fallers on the FTSE 100 this morning. The sector faces a very different environment today after years of strong property prices, cheap mortgages and state support for first-time buyers.”
Updated
Here’s our news story on this morning’s Halifax house price report:
UK lenders have not, yet, made significant changes to mortgage rates since the Bank of England lifted base rate to 5.25% last Thursday.
Moneyfacts reports that the average 2-year fixed residential mortgage rate has fallen slightly to 6.84% this morning, down from 6.85% on Friday (and for most of last week).
The average 5-year fixed residential mortgage rate today is 6.35%, unchanged from Friday.
Former UK chancellor Kwasi Kwarteng has revealed he is among those suffering from the jump in mortgage costs since his mini-budget last autumn, as he has a tracker mortgage
In an interview with GB News last weekend, the former chancellor was asked whether he felt any sympathy for those affected by the rise in mortgage rates, before letting on that he was among them.
Kwarteng said:
“I’m probably revealing too much, but I’m on a tracker as well.
My bills have gone up considerably.”
Here’s the full story:
House buyers should approach the market ‘with caution’, following the four monthly falls in prices in a row, says Myron Jobson, senior personal finance analyst at interactive investor:
For many, the decision to buy or not to buy hinges on where mortgage interest rates land, Jobson points out:
Inflation is still key to the direction of mortgage rates. Fixed mortgage rates dipped following the lower-than-expected fall in inflation in June before creeping higher ahead of the Bank of England’s latest interest rate hike. Inflation is expected to ease significantly in the coming months, led by a fall in energy costs - which could pull down mortgage rates in the process.
Put simply, if inflation starts to move meaningfully lower, this takes the pressure off the Bank of England to continue raising interest rates, so mortgage rates could follow.
“Buyers should proceed with caution. With home prices and mortgage rates remaining elevated, buyers should be careful to avoid biting off more than they can chew.”
Britain’s chronic problem of poor housing availability may support house prices, even as it becomes more expensive to get a mortgage.
As Gareth Lewis, managing director of property lender MT Finance, points out, there aren’t enough houses for everyone who would like to buy one:
‘The continued decline in house prices is unsurprising as the market remains impacted by rate uncertainty and affordability issues. Buyers are continuing to either play the waiting game or become more aggressive when offering on properties.
But there are positive signs - there is still the desire to buy, but with a realignment with what is realistic or achievable in value.
‘The housing market is resilient, there are still not enough houses to go around so we will likely continue to see strong values, even with so much uncertainty.’
Back to the UK housing market, mortgage brokers and estate agents are backing Halifax’s forecast of a gradual decline in house prices.
Stephen Perkins, managing director at Norwich-based brokerage Yellow Brick Mortgages, says there was “certainly” a slowdown in sales in July.
High mortgage rates and talk of falling house prices to come are resulting in many buyers waiting for better conditions.
As more would-be sellers languish on the market with no interest from potential buyers, they will have to reduce their asking prices to attract offers. So house prices will drop over the coming months. However, it will be a more gradual correction of 5%-10% rather than the more extreme crashes that have been suggested by some. This appears to be the view of the Halifax, too, based on this latest house price report.”
Tom Bill, head of UK residential research at Knight Frank, predicts a 5% fall during 2023.
“The journey back to long-term rate normality has been fraught and put downwards pressure on house prices and sales volumes over the last year.
The previous government went too far, too fast for financial markets and the Bank of England has been accused of doing too little too late. However, some lenders are cutting mortgage costs as the bank rate nears its peak, which means that while sentiment will remain subdued, it should improve in the second half of this year.
While we expect UK prices to fall by 5% in 2023, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”
Saudi Aramco posts $30bn profits in Q2
Elsewhere, Saudi Arabia’s oil giant has reported profits of around £26.3bn for the last quarter, despite the drop in energy prices.
Saudi Aramco has posted net income of 112.8bn riyal for April-June, or around $30bn.
That’s a 38% drop, year-on-year, reflecting the drop in crude oil and gas prices in 2023 compared to the surge after the Ukraine war.
Aramco President & CEO Amin H. Nasser, says the results are “strong”, and shareholders (who are mainly the Saudi government) will benefit through new “performance-linked dividends” over the next six quarters:
We continue to demonstrate our long-standing ability to meet the needs of customers around the world with high levels of reliability. For our shareholders, we intend to start distributing our first performance-linked dividend in the third quarter.
Aramco intents to keep investing in raising its oil and gas production, despite warnings from environmental campaigners that fossil fuels must be kept in the ground to achieve net zero.
Nasser says:
“At Aramco, our mid to long-term view remains unchanged. With a recovery anticipated in the broader global economy, along with increased activity in the aviation sector, ongoing investments in energy projects will be necessary to safeguard energy security.
“We are maintaining the largest capital spending program in our history, with the aim of increasing our oil and gas production capacity and expanding our Downstream business — with petrochemicals projects, such as our $11.0 billion expansion of the SATORP refinery with TotalEnergies, essential to meet future demand.
Updated
Regional house prices: South East England sees largest falls
Average house prices fell on an annual basis in almost all parts of the UK in July, Halifax reports this morning.
House prices are facing the most downward pressure in the South East – prices have dropped by 3.9% over the last year, meaning the average price has dropped by just over £15,500 in the last year (down to £382,489).
In Greater London, average property prices are down by -3.5% annually, meaning the average price in the capital is now £531,141.
But, the West Midlands bucked the trend – with prices flat year-on-year at £250,285.
Elsewhere, the rapid boom in prices during the pandemic in Wales has ended. Price in Wales are down by 3.3% on an annual basis (lowering the average house price to £214,495).
In Scotland, prices were down by 0.7% year-on-year, while in Northern Ireland they were down by just -0.3% annually.
Updated
The buy-to-let sector appears to be “under some pressure”, Halifax’s Kinnaird adds, although:
…elevated interest rates are just one factor impacting landlords’ business models, together with considerations of future rental market reforms.
It remains to be seen how many may choose to exit and what that could mean for the supply of properties available to buy.
First-time buyers eye smaller homes due to rising mortgage costs
The jump in mortgage costs in recent weeks is forcing first-time buyers to look at smaller properties than they would have otherwise aimed for, Halifax says.
Kim Kinnaird, director at Halifax Mortgages, explains:
“In particular, we’re seeing activity amongst first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs.
Updated
Halifax: House price falls likely to be gradual, rather than precipitous
Looking ahead, Halifax warns that borrowing costs are likely to remain much higher than over the last decade, following the recent jump in mortgage costs.
Kim Kinnaird, director at Halifax Mortgages, points out that the rise in mortgage rates appears to have stabilised in recent days, so falls are likely to be ‘gradual’:
Expectations of further Base Rate increases from the Bank of England were tempered by a better-than-expected inflation report for June.
However, while there have been recent signs of borrowing costs stabilising or even falling, they will likely remain much higher than homeowners have become used to over the last decade.
“The continued affordability squeeze will mean constrained market activity persists, and we expect house prices to continue to fall into next year. Based on our current economic assumptions, we anticipate that being a gradual rather than a precipitous decline.
And one that is unlikely to fully reverse the house price growth recorded over recent years, with average property prices still some £45,000 (+19%) above pre-Covid levels.”
Introduction: Halifax reports house prices fell again in July
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
UK house prices dropped again last month, lender Halifax reports this morning, as higher interest rates cool the market.
But Halifax says it expects a “gradual” drop in prices in the coming months, rather than a “precipitous decline”.
Its monthly house price index, just released, shows that the average house price dropped by 2.4% on an annual basis in July. That’s a pick-up compared with June, when prices fell by 2.6% – the biggest drop since 2011.
On a monthly basis, the average house price fell by -0.3% in July, the fourth consecutive monthly decline.
It means the typical UK home now costs £285,044, down from a peak of £293,992 last August, on Halifax’s gauge of the housing market.
But, Halifax also says the market is showing ‘some resilience, although Southern England and Wales are seeing the most “downward pressure on property prices”.
For the 4th consecutive month - Avg house prices are chipped. In July 23 this was by -0.3% making the avg house now worth £285,044 down -2.4% annually and £8,948 less than Aug 22 peak. The South East & London are taking the biggest annual hit falling -3.9 & -3.5 @HalifaxBank pic.twitter.com/hgurpNuTJR
— Emma Fildes (@emmafildes) August 7, 2023
Kim Kinnaird, director of Halifax Mortgages, explains today’s report:
“Average UK house prices edged down slightly in July, with the monthly fall of -0.3% equivalent to a drop of around £1,000 in cash terms. While this was the fourth consecutive monthly decrease, all have been smaller than -0.5%.
“In reality, prices are little changed over the last six months, with the typical property now costing £285,044, compared to £285,660 in February. The pace of annual decline also slowed to -2.4% in July, versus -2.6% in June.
These figures add to the sense of a housing market which continues to display a degree of resilience in the face of tough economic headwinds.
This is the latest in a series of signs that higher interest rates have cooled the housing market.
Last week, rival lender Nationwide reported that house prices fell at the fastest annual rate in 14 years last month, by 3.8%.
And online portal Rightmove reported last month that the average price tag on a home coming onto the market fell by £905 or 0.2% in July.
Also coming up today
European stock markets are set to open lower, after a late drop on Wall Street on Friday night saw the Nasdaq 100 and S&P500 both post their worst weekly performances since March.
Late US sell-off set to weigh on European open https://t.co/A40dlWNZSu @CMCMarkets
— Michael Hewson 🇬🇧 (@mhewson_CMC) August 7, 2023
The Bank of England’s chief economist, Huw Pill, will hold a Q&A this evening about the cost of living and current economic conditions, just a few days after the BoE raised interest rates to a 15-year high.
UK companies posting earnings today – PageGroup - US companies – Monday – KKR, Tyson Foods - Economic data – Halifax House Prices, Germany Industrial Production, US Consumer Credit
— David Buik (@truemagic68) August 7, 2023
The agenda
7am BST: Halifax UK house price index for July
11am BST: Spanish consumer confidence for July
5pm BST: Virtual Q&A with Bank of England chief economist, Huw Pill
