Afternoon summary
Time for a recap
U.S. President Joe Biden has declared that June’s non-farm payroll report, showing continued, but slowing, job growth is “Bidenomics in action”.
In a statement, Biden declared:
“We are seeing stable and steady growth. That’s Bidenomics - growing the economy by creating jobs, lowering costs for hardworking families, and making smart investments in America.”
Nonfarm payrolls increased by 209,000 jobs last month, the smallest gain since December 2020, while April and May’s reports were revised down to show 110,000 fewer jobs created than expected.
Wage growth strengthened, rising 0.4% in the month. But there was also a rise in part-time work, suggesting demand weakened.
The US dollar has lost ground, and is now down 0.7% against a basket of currencies today, and at a two-week low against the yen.
Bond and equity markets are calm, after a volatile selloff on Thursday, with economists predicting US interest rates will be raised again later this month.
Charles Hepworth, investment director at GAM Investors, says:
“In the month of June, the US added 209,000 people to the non-farm workforce on the previous month. This number came in just under most forecasts of a 230,000 gain, but is still probably not what the Fed wants to see if it intends to continue pausing rate hikes.
“Average hourly earnings were also up more than expected, rising 0.4% on the month and showing a 4.4% advance year-on-year. The broader unemployment rate fell to 3.6%. The US economy looks far from softening. All these factors mean interest rate hikes are back on the agenda. We expect the Fed to raise rates at its meeting later this month.”
In other news today…
Travellers catching ferries from Dover faced queues of up to two hours on Friday as traffic built up at border posts.
The Kent port said passengers should expect waits of up to two hours for coaches and 90 minutes for cars, as traffic built up in the morning.
Ferries were operating normally, and passengers are allowed to catch subsequent sailings.
A combination of the sun, the start of school holidays in parts of the UK, and a school teachers’ strike offering parents a potential long weekend may have contributed to the pressure on the port.
UK house prices experienced their biggest annual fall in 12 years, according to Halifax.
Prices fell by 2.6% year-on-year, in the latest sign that soaring interest rates on mortgages is bringing a halt to the housing boom.
UK mortgage rates have continued to rise, as the financial markets expect UK interest rate to rise to 6.5% by early next year, up from 5% today.
Half of older adults who left the UK workforce amid mass redundancies in the first year of the Covid pandemic ended up falling into relative poverty, according to the Institute for Fiscal Studies (IFS).
The estimated £4.8bn cost of HS2’s endangered Euston terminus could balloon further unless the government becomes “clear what it is trying to achieve”, the public accounts committee has warned.
Air traffic control managers in mainland Europe are planning to strike this summer, potentially exacerbating disruption to holiday flights should French strikes continue.
South East Water, which left thousands of households without running water last month spent more on dividends and servicing its debt pile over two years than investing in infrastructure, it has emerged.
And….the last Ford Fiesta will leave the assembly line today, marking the end of an era for a model that sold 22m vehicles globally and is the UK’s all-time bestselling car.
Have a lovely weekend. GW
Here’s Erik Norland, Senior Economist at CME Group, on the jobs report:
“NFP surprised on the downside by 131K jobs net of revisions to previous months’ numbers, but the overall number wasn’t necessarily weak with wage growth surprising on the high side and unemployment, which is calculated from a separate survey, coming in at 3.6%. The economy still added 209K jobs in June.
Thursday’s JOLTS survey showed that there were 9.8 million job openings at the end of May, about three million than there were in late 2019 before the pandemic. This implies the possibility of strong demand for workers in the months ahead, even if economic activity slows in response to the Fed’s rate hikes.”
Joe Biden on jobs report: This is Bidenomics in action:
The US president has hailed June’s jobs report as evidence that “Bidenomics” is working, delivering sustainable economic growth.
In a statement just issued by the White House, Joe Biden says:
This is Bidenomics in action: Our economy added more than 200,000 jobs last month—for a total of 13.2 million jobs since I took office.
That’s more jobs added in two and a half years than any president has ever created in a four-year term. The unemployment rate has now remained below 4% for 17 months in a row—the longest stretch since the 1960s. The share of working-age Americans who have jobs is at the highest level in over 20 years. Inflation has come down by more than half.
We are seeing stable and steady growth. That’s Bidenomics—growing the economy by creating jobs, lowering costs for hardworking families, and making smart investments in America.
"This is Bidenomics in action: Our economy added more than 200,000 jobs last month—for a total of 13.2 million jobs since I took office. That’s more jobs added in two and a half years than any president has ever created in a four-year term," says Preside… https://t.co/TOF19S9c84
— Steve Herman (@W7VOA) July 7, 2023
Updated
This chart shows pretty clearly that US job creation is in a downward trend, once you account for the downward revisions to the April and May jobs reports:
..But what it clearly does is reassert the downward trend, which had looked to be flattening; the revisions have made the spring seasonals less favorable. I don't often like to play the extrapolation game but on this occasion the trend is so pronounced that it seems reasonable. https://t.co/HU2uDsF4Ap pic.twitter.com/e3lGDx5200
— Ian Shepherdson (@IanShepherdson) July 7, 2023
The White House Council of Economic Advisers have tweeted their views on today’s US jobs report – which they argue shows more jobs created than you’d normally expect.
Today’s employment report shows the U.S. economy added 209,000 jobs in June, slightly below market expectations. Employment growth in April and May was revised down by a combined 110,000 jobs. The average monthly gain over the past three months is now 244,000. 1/ pic.twitter.com/92XAR1vYnX
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
The headline unemployment rate ticked down to 3.6 percent. The broadest measure of underemployment, called U6, rose to 6.9 percent. Both measures have remained roughly around these low rates since March 2022. 2/ pic.twitter.com/kxrROU73rs
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
As the unemployment rate falls late in business cycles, job growth typically cools. Nevertheless, June’s 209,000 job growth is higher than we would have expected with a 3.6% unemployment rate given the 2015-19 experience. 3/ pic.twitter.com/FKItAcLGEZ
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
Labor force participation was 62.6 percent in June, unchanged from May. The participation rate for 25-54 year-olds, which is less sensitive to the aging of the population and so is preferred by many economists, rose to 83.5%, its highest rate since May 2002. 6/ pic.twitter.com/lcauMlyCYK
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
Monthly nominal average hourly earnings growth held steady at 0.4 percent in June. We do not have the inflation report for June yet, which will include real wage growth. 8/
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
Three-month average wage growth was 4.7 percent annualized in June, lower than the 6.4 percent in January 2022 but higher than it was last month. 9/ pic.twitter.com/EHd1M3BdqB
— Council of Economic Advisers (@WhiteHouseCEA) July 7, 2023
The stronger-than-expected wage growth in June suggests that US firms were prepared to sign off pay rises for workers, or paying more for new staff.
In other words, demand for workers remains “robust”, says Greg Wilensky, head of US fixed income at Janus Henderson Investors:
“June’s nonfarm payrolls growth of 209,000 came in slightly below consensus expectations of 230,000. The unemployment rate ticked down to 3.6% from 3.7% in May, while the labor force participation rate held steady at 62.6%. While this is the lowest monthly gain in jobs since the pandemic, this level of growth remains congruent with a strong labor market.
Notably, Average Hourly Earnings rose more than expected in June, another signal that demand for labor remains robust.
In our view, there is nothing in the data that would cause the Federal Reserve (Fed) to hit the brakes on a rate hike in July. The labor market continues to show sufficient strength that we expect the Fed to follow through with another 25 basis point rate hike in July, and make few changes to its previous statements regarding the strength of the labor market.
Looking forward to the likelihood of a September rate hike, we think that decision will largely be driven by data releases between now and then.”
Futures trading indicates there is a 90% chance that the Federal Reserve lifts rates at its meeting later this month, having paused in June.
That’s according to the CME FedWatch Tool.
Fed rate hike in July now more than 90% likely, futures trading suggests https://t.co/87X5D873Yb
— Breaking Fed News (@BreakingFedNews) July 7, 2023
Wall Street has opened in the red.
This suggests investors anticipate that the Federal Reserve will raise US interest rates higher, given the resilience in the US joba markets.
The Dow Jones Industrial Average, which tracks 30 large US companies, fell 85.19 points, or 0.25%, at the open to 33,837.07.
The broader S&P 500 opened 7.05 points lower, or -0.16%, at 4,404.54, while the tech-focused Nasdaq Composite lost 10.98 points, or almost 0.1%, to 13,668.07 at the opening bell.
US short-term government bonds have recovered some of their earlier losses, after the jobs report was released.
This has pulled the yield, or interest rate, on 2-year Treasury Bills down to 4.98%. That’s back below the 5% mark hit yesterday for the first time since March, as yields hit 15-year highs.
Yields rise when bond prices fall, and the recent surge in yields follows increases in US interest rates and expectations of further rises to fight inflation.
Updated
Part-time work rose in June as hours were cut back
There was also a rise in Americans being moved onto part-time work due to weakening demand in June, the jobs report shows.
The number of people employed part-time for economic reasons increased by 452,000 to 4.2 million in June.
This "partially” reflects an increase in the number of people whose hours were cut due to slack work or business conditions, the report says, even though they would have preferred full-time employment.
US jobs report: What the experts say
Today’s jobs report is “slightly weaker” than many expected, says Richard Flynn, managing director at Charles Schwab UK.
The labour market remains tight, but investors will likely interpret these numbers as a sign that cracks are beginning to emerge. As wage growth is yet to substantially ease, the Fed will likely feel continued pressure to maintain high interest rates. When inflation remains an issue for the US economy, slower and weaker pay growth will make it easier for the Fed to maintain price stability.”
John Leiper, chief investment officer at Titan Asset Management, agrees that today’s jobs report is “very different” than previous months.
Non-farm payroll came in below expectations for the first time in a year and revisions to the two prior readings remove another 110,000 jobs. Despite fewer jobs, the unemployment rate fell.
In summary, 209,000 additional jobs is still strong, unemployment is historically low and average hourly earnings rose. It was interesting to see, given weakness in the sector, that manufacturing employment actually rose.
Bottom line, despite the noticeably softer number versus yesterday, which is catalysing a rebound in risk sentiment, this doesn’t detract from the narrative that the Fed has more work to do on rates.’
A 209,000 increase in payrolls can “hardly be described as weak”, argues Seema Shah, chief global strategist at Principal Asset Management.
Jobs growth has slowed but remains too strong to justify an extended Fed pause. More significantly, with average hourly earnings surprising to the upside, wage pressures are still too strong. Today’s report will give the Fed little reason to hold off from hiking at the July meeting.
“Now attention will turn to next week’s CPI report. Without a slowdown in monthly core inflation, market focus may start turning to whether rate hikes will persist into September and, from there, questioning how much more monetary tightening the U.S. economy can realistically take before something breaks.”
Hugh Grieves, fund manager of the Premier Miton US Opportunities Fund, says America seems to be avoiding falling into an often-predicted recession:
“US workers continue to be in strong demand as the American economy remains remarkably resilient, adding 209,000 workers to the national payroll in June, despite the Federal Reserve’s best efforts to apply the brakes.
With the unemployment rate remaining at just 3.6%, employees are in short supply resulting in workers’ hourly wages now rising faster than headline inflation. With numbers like these, a recession looks improbable any time soon.”
Full story: US job market remains robust though slowing
The US economy added 209,000 new jobs in June as hiring slowed, our US business editor Dominic Rushe reports.
The rise was lower than the 240,000 jobs economists had expected and lower than the 309,000 jobs added in May.
But the gain was the 30th consecutive month of jobs gains and the unemployment rate ticked down to the historically low rate of 3.6%.
The US job market has remained robust despite the Federal Reserve’s aggressive attempts to slow the economy and tamp down inflation with more than a year of interest rate hikes.
The Fed chair, Jerome Powell, has indicated that the central bank is likely to raise rates again this month after announcing a pause in June. More here….
Disappointingly, US job growth in April was weaker than previously thought.
Today’s payroll report shows that April’s data has been revised down by 77,000, from +294,000 to +217,000.
Include May’s downward revision of 33k, and this means 110,000 fewer jobs were created in these two months than first reported.
The change in total nonfarm payroll employment for April was revised down by 77,000 to +217,000, and the change for May was revised down by 33,000 to +306,000. With these revisions, employment in April and May combined is 110,000 lower than previously reported.#US #NFP #Nonfarm
— CN Wire (@Sino_Market) July 7, 2023
These revisions aren’t unusual – NFP reports are typically adjusted after their first release. But it does raise questions over whether the strength of the labor market has been overstated..
With all these big revisions to US nonfarm payrolls, what is going on with the economy? If companies aren’t hiring as many, perhaps talks of more rate hikes are based on wrong data. https://t.co/KZRCJVtfBH
— Brian Tycangco 鄭彥渊 (@BrianTycangco) July 7, 2023
Updated
The US dollar has weakened slightly, following the news that US job growth was lower than expected in June.
Against a basket of currencies, the dollar is down 0.3% today, while the pound is up half a cent against the greenback at $1.2788.
US wages rise faster than expected
Average pay rose in June, in a boost to US employees – but a potential headache for the Federal Reserve.
In June, average hourly earnings rose by 12 cents, or 0.4%, to $33.58, ahead of expectations of a 0.3% rise.
Over the past 12 months, average hourly earnings have increased by 4.4%, ahead of expectations of a 4.2% annual rise.
That indicates earnings are rising ahead of inflation, which fell to 4% in May (we get June’s CPI inflation report next week).
Wages came in stronger than expected thats the fly in the ointment here, +0.4% m/m verus +0.3% exp, and +4.4% y/y versus 4.2%. This is not hot hot, but last month was bumped up a tenth on each too. https://t.co/dQXMknxkuS
— Bill Blue Line (@bill_baruch) July 7, 2023
Updated
Employment in government, health care, social assistance, and construction continued to trend up in June, the jobs report shows.
Employment in government increased by 60,000 in June.
Health care added 41,000 jobs
Social assistance added 24,000 jobs
Employment in construction rose by 23,000
At 209,000, the increase in US employment last month was below recent averages.
Nonfarm employment has grown by an average of 278,000 per month over the first 6 months of 2023, lower than the average of 399,000 per month in 2022.
US jobless rate dips to 3.6%
The US unemployment rate has dropped to 3.6%, down from 3.7% in May.
The latest Household Survey Data, just released, also shows there were 5.957m people unemployed in the US in June, down from May’s 6.097m.
The unemployment rate has ranged from 3.4% to 3.7% since March 2022, says the Bureau of Labor Statistics.
Updated
US non-farm payroll report released
Newsflash: The US economy added fewer jobs than expected last month, as job creation slowed.
June’s Non-Farm Payroll expanded by 209,000, missing forecast that around 225,000 new jobs would be created.
That’s a slowdown on May, when a downwardly-revised 306,000 jobs were created [that’s down from the first estimate of 339k jobs].
That’s a blow to US workers, and suggests the US labor market is weakening – which may take some pressure off the US Federal Reserve to raise interest rates higher.
Updated
The US jobs market has been particularly strong of late, with nonfarm payrolls data beating expectations in the last 14 months in a row.
That trend could continue today, says Fawad Razaqzada, market analyst at City Index.
He adds:
If it does, it will mean interest rates will likely rise and remain higher for longer. This could benefit the US dollar in the short-term, even if high rates for longer might be something that could ultimately hurt the economy at some later point in time.
Headline jobs growth is expected to have risen by 224,000 in June, causing the unemployment rate to drop back to 3.6% after it unexpectedly rose to 3.7% in the previous month. Average hourly earnings, a key measure of inflation, are expected to have risen by 0.3% month-over-month.
A crucial US jobs report looms
Tension is mounting in the financial markets, as investors eagerly await the latest US employment report, due in 30 minutes.
June’s Non-Farm Payroll (NFP), due at 1.30pm UK time or 8.30am EDT, will have a major influence on whether US interest rates continue to rise.
Economists predict that job creation slowed in June, with an estimated 225,000 new hires, down from May’s 339,000 (which may be revised).
But after yesterday’s ADP private payroll report, which showed 497,000 new hires at US companies last month, traders are bracing for a strong NFP which could prompt the US Federal Reserve to raise interest rates later this month.
Conversly, a weak payroll report today could indicate that the economy is weakening.
Jim Reid, analyst at Deutsche Bank, point out that unemployment rarely rises before a recession
He told clients today:
In the 12 months leading up to a US recession, unemployment tends to be flat with very little variation around this. It then doesn’t increase until the recession starts, and then rises quite sharply over the next 12-15 months on average.
The strength of wage growth last month will also influence the Fed’s hand, as it tries to cool demand in the economy. Average earnings growth is expected to remain at +0.3% month-on-month in June.
what about the nfp later and will the data be much different from the previous one? pic.twitter.com/ckdgKYAw1X
— FxHeaven (@HeavenInsidelaw) July 7, 2023
The impact of UK food inflation will be painfully obvious to anyone shopping for a barbeque this weekend.
One of the biggest drivers behind the cost of the British barbecue is meat. In the past five years, the price of four frozen beef burgers has jumped 64.4%, from £2.02 to £3.32, much of that in the past year alone, when the price has increased by 80p.
Vegeburgers are 50% pricier than in 2018, while peppers and prawns are much more expensive too. You can track it all here:
UK house prices are falling at their fastest annual pace since 2011, Halifax says, as the property market buckles in the face of rising borrowing costs@krisaqnews breaks it down: https://t.co/mn8yjQVbIe pic.twitter.com/bd3lQ6s3Fa
— Bloomberg (@business) July 7, 2023
Inflationary pressures are easing in the eurozone, according to Luis de Guindos, vice-president of the European Central Bank.
Speaking at King’s College London this morning, de Guindos said that there are “some signs of softening” in the indicators tracking underlying price pressures.
And “while still wide by historical standards, the range of measures of underlying inflation recently began to narrow”, de Guindos says, adding:
This suggests that the unusually high level of uncertainty around the downward trajectory of inflation over the medium term has started to ease somewhat.
De Guindos cautioned, though, that the ECB’s job “is not yet done”, having raised interest rates by 400 basis points (four percentage points).
He adds:
Services inflation, and labour costs in particular, need to be closely monitored, as they are now an important driver of overall inflation.
The UK competition regulator has called on bed-in-a-box brand Emma Sleep to change its online sales practices or face potential court action.
The Competition and Markets Authority is concerned that customers are being misled through pressure selling tactics such as “countdown timers”.
The CMA also said it found evidence that “discount claims made by Emma Sleep did not stack up against the actual savings made by customers”.
Sarah Cardell, chief executive of the CMA, explains:
“Companies that use fake countdown clocks or misleading ‘discounts’ risk pressuring people into making quick purchases and often spending more money than they otherwise would for fear of missing out.
“This is especially concerning given the current pressure on people’s pockets.
“We have put a number of detailed concerns to Emma Sleep about its sales tactics.
“The CMA looks to Emma Sleep to agree to change the way it does business to avoid the risk of court action.”
🛏️ We’ve written to Emma Sleep setting out our concerns about their online sales tactics.
— Competition & Markets Authority (@CMAgovUK) July 7, 2023
Our evidence shows that their use of count-down clocks, discount claims and ‘high demand’ claims could break consumer protection law.
Read more: https://t.co/8Abog3vvU6 pic.twitter.com/nbSWTk1KaH
The money markets are still predicting further increases in UK interest rates this year, to battle inflation.
The Bank of England is expected to raise rates to around 6.5% by next February, up from 5% at present.
This prospect is likely to weigh on house prices this year.
The CEBR economic consultancy has warned that “higher-for-longer interest rate expectations” wukk reinforce the likelihood of a contraction in house prices this year.
They explain:
House prices are forecast to fall by 1.8% on average across 2023. This follows strong annual growth of 9.9% over 2022. This would mean a peak-to-trough decline of 7.1% in average prices between Q4 2022 and Q4 2023.
Due to the majority of mortgagers being on fixed rate deals, higher mortgage rates will continue to dampen market activity throughout the next year. As at least a million homeowners are required to renegotiate their fixed-term agreements in 2024, we expect average house prices to contract by 0.8% in that year.
Travellers arriving in Dover for cross-Channel ferries are facing long queues, PA Media reports.
The Kent port said processing times for passing through checks by French border officials are two hours for coaches and one-and-a-half hours for cars.
In a message to waiting passengers, the port stated:
“Today is already proving a popular travel day at Dover, and the port is busy processing strong volumes of tourist traffic.
“Teams from the port, Police aux Frontieres and our ferry operators are working to get you through as swiftly as possible.”
Delays in processing passengers have been blamed on French border officials carrying out extra checks and stamping UK passports following Brexit.
#PODOVER - There are currently queues of 90 mins for cars and 120 mins for coaches to reach border checks in Dover. The rest of the port is currently free flowing and we will get you on your way asap. Please ensure you arrive prepared and carry spare bottles of water with you.
— P&O Ferries Updates (@POferriesupdate) July 7, 2023
Charts: rising mortgage rates and falling house prices
Here’s a chart showing how the cost of fixed-rate mortgages has climbed over the last few weeks, including today, as the markets have anticipated higher interest rates.
…and here’s the fall in UK house prices, reported by Halifax this morning:
Britain’s economy has suffered its biggest drop in productivity in a decade, new data shows.
According to the Office for National Statistics, output per hour worked fell by 0.6% in January to March, the weakest annual growth since Quarter 1 2013, excluding the Covid-19 pandemic.
Output per worker fell by 0.9%, while output per job dropped 1% year-on-year in Q1 2023, the weakest annual growth for both since July-September 2009 (again, if you exclude the coronavirus lockdowns).
UK @ONS confirms output-per-hour productivity dropped 0.6% in Q1 - the biggest such decline in 10 years.
— Andy Bruce (@BruceReuters) July 7, 2023
In terms of levels, output-per-hour is 0.6% higher than in 2019. https://t.co/KAslfDjibz pic.twitter.com/FBAEgMpDo6
After weeks of turbulence in the mortgage market, there are signs of “a semblance of normality” returning as lenders slow down the readjustment of their rates, says Karen Noye, mortgage expert at Quilter:
But, she warns, the increase in mortgage rates will make it harder for borrowers to service their debts:
House prices have seen yet another modest drop of 0.1%, according to Halifax this morning. Given the huge squeeze on affordability at the moment this is likely to be sign of things to come but its worth remembering that the housing market despite everything that has been thrown at it over the past few years has remained resilient. However, the economic storm currently battering Britain seems like an insurmountable hurdle and downward pressure on house prices is inevitable.
With two year fixed rate mortgages now well above 6%, people’s ability to continue to service their mortgage will be called into question and also first time buyer’s desire to jump into paying such a high monthly rate will also be tested. This could create an environment where those who have overstretched themselves look to offload their properties at a time where there is a dearth of demand.
World food prices hit two-year low in June
Newsflash: Global food commodity prices have fallen to their lowest level in over two years.
The United Nations food agency’s world price index, just released, dropped in June to its lowest level since spring 2021.
It was pushed down by a drop in the cost of sugar, vegetable oils, cereals and dairy products, away from the highs set in 2022 after the Ukraine invasion.
The Food and Agriculture Organization’s (FAO) price index, which tracks the most globally-traded food commodities, averaged 122.3 points in June, down from 124.0 in May.
The FAO reports that world prices of all major cereals fell in June, pulling cereal prices down by 2.1% during June, and by 23.9% year-on-year. It adds:
International coarse grain prices fell the most, down 3.4 percent since May. A fifth consecutive monthly decline in international maize prices was mostly driven by increased seasonal supplies from ongoing harvests in Argentina and Brazil
Vegetable oil prices fell by 2.4% during June, to the lowest level since November 2020.
Dairy prices fell 0.8% in the month, and were 22.2 lower than a eary ago
The repor explains:
The decline in June was again led by lower international cheese prices, reflecting ample export availabilities, especially in Western Europe, where milk production tracked seasonally higher, while retail sales were somewhat subdued.
Meanwhile, whole milk powder prices fell slightly on lower import purchases by North Asian buyers and increased supplies, especially from New Zealand. By contrast, world butter prices rose, driven by active demand for spot supplies, mainly from the Middle East, and increased internal retail sales in Western Europe.
Skim milk prices increased slightly on higher import purchases to meet short-term needs amid concerns over supplies in the months ahead during the seasonally declining production phase in Western Europe.
Hard-pressed households will hope to see these reductions feeding through to lower prices on the shelves….
Updated
Moneyfacts also reports that savings rates have risen higher today – at a time when pressure is mounting on banks to offer more to savers.
Here’s the details:
The average 1-year fixed savings rate today is 4.83%. This is up from an average rate of 4.80% on the previous working day.
The average easy access savings rate today is 2.49%. This is up from an average rate of 2.48% on the previous working day.
The average 1-year fixed Cash ISA rate today is 4.52%. This is up from an average rate of 4.49% on the previous working day.
The average easy access ISA rate today is 2.61%. This is up from an average rate of 2.59% on the previous working day.
UK bank chiefs met with the UK’s financial regulator yesterday, and were urged to “accelerate” savings rates…
Moneyfacts: 2 and 5-year fixed mortgage rate rise again
UK fixed mortgage rates have climbed again this morning, to levels last seen in autumn 2022 after the mini-budget caused market volatility.
Moneyfacts reports that two-year, and five-year, rate have both risen, leaving them both above 6%.
They say:
The average 2-year fixed residential mortgage rate today is 6.54%, up from 6.52% on Thursday
The average 5-year fixed residential mortgage rate today is 6.04%. This is up from an average rate of 6.02% on the previous working day.
There are currently 4,621 residential mortgage products available, up from 4,594 yesterday.
Over in the City, stocks have opened lower after yesterday’s heavy selloff.
The FTSE 100 share index has dropped by almost 0.4%, down 26 points at 7254 points, having ended Thursday at its lowest closing level since last November.
It has touched 7,232 points this morning, the Footsie’s lowest intraday level since March, when the panic in the banking sector triggered losses.
Germany’s DAX dipped by 0.2% at the open, while France’s CAC is flat, after both share indices also fell sharply on Thursday.
Updated
New figures from low-cost housebuilder MJ Gleeson this morning have confirmed the housing market slowdown.
Its subsidiary, Gleeson Homes, reports that house sales slumped more than a fifth year-on-year in the six months to the end of June, as first-time buyers struggled to get onto the housing ladder – while the number of older buyers doubled.
Gleeson said that 829 homes were sold in the second half of its financial year, down from 1,068 in the same period last year, “reflecting the downturn in the wider economy and the immediate impact on buyer confidence as a result of higher interest rates”.
While the company said that house prices remained “resilient”, the average price increased 11.3% to £167,300 during the year, it noted a “signifcant shift” in buyer demographics in recent months.
In the first half of this year the proportion of first-time buyers slumped from 71% in the same period last year to around 50%.
Meanwhile, the proportion of over-55 year old buyers doubled from 10% to a fifth of all sales.
Overall, Gleeson saw annual house sales drop from 2,000 in its last financial year to 1,723 in the year to the end of June.
It said:
“Looking ahead, whilst the board believes that demand from first-time buyers will continue at the levels seen through the last few months, it anticipates that interest from other value-driven buyers will increase as purchasers look to take advantage of Gleeson’s more affordable price points and high quality.”
UK house price correction remains modest, says EY ITEM Club
UK house prices continue to display a surprising degree of resilience, says the economic forecasters at the EY ITEM Club, by only dipping 0.1% during June (although -2.6% on an annual basis)
However, they fear that this resilience will likely fade.
Martin Beck, chief economic advisor to the EY ITEM Club, warns that the rise in mortgage rates over the last month, if sustained, will increase the challenges faced by those renegotiating fixed rate mortgages.
It could, in theory, prompt a bigger fall in prices than the 10% peak-to-trough decline in values the EY ITEM Club expects.
Beck says:
The reaction of financial markets to a series of upside surprises for inflation and pay growth has caused interest rate expectations to increase and this is feeding into higher mortgage interest rates.
“The rise in swap rates reflects markets’ view that the Bank of England will continue to raise rates significantly, with Bank Rate now widely expected to peak at 6.5% early next year. But the EY ITEM Club thinks an improving inflation outlook means the market view is too downbeat and that rates will stabilise after two further rises by the Bank of England. If that prediction is correct, mortgage rates should fall back during the second half of this year, albeit to levels still high by the standards of the last decade or so.
“And there are other reasons to think that, while house prices are likely to drift down, a serious correction should be avoided.
Instant Info – Halifax UK House Price Index pic.twitter.com/TXQNUNbObi
— BuiltPlace (@BuiltPlace) July 7, 2023
The drop in UK house prices shows that the rise in UK interest rates is having a ‘major ripple effect’ on the housing market, says Victoria Scholar, head of investment at interactive investor.
She says:
Mortgage rates have been increasingly sharply with two-year fixed deals averaging 6.52% according to the latest data from Moneyfacts while five-year deals surpassed 6% for the first time in 2023.
The Bank of England’s desperate attempts to bring sky-high inflation back down towards its 2% target is starting to have a major ripple effect across the housing market, dampening demand for properties and in turn weighing on prices. This is of course the intended effect of monetary tightening, but there’s no shying away from the pain it is causing for those on variable rate mortgages and in terms of the wealth effect for many homeowners who are seeing their prized asset drop in value.
While a drop in house prices will be a welcome development for those looking to get onto the property ladder, the cost of borrowing is still a major deterrent with the era of rock bottom interest rates now nothing more than a nostalgic memory.”
Updated
Halifax: Household squeeze will weigh on house prices
It is hard to predict how deep or persistent the downturn in house prices will be, says Kim Kinnaird, director of Halifax Mortgages.
Kinnaird explains:
Consumer price inflation is likely to come down in the near term as energy and food prices look set to reverse their steep rises, but core inflation is clearly proving stickier than originally expected.
With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.”
Today’s report from Halifax is unlikely to be the last national house price index to fall into negative territory this year, warns Tom Bill, head of UK residential research at Knight Frank.
But Bill also predicts we won’t see a house price crash, saying:
Mortgage rates will keep edging up as wage growth keeps core inflation stubbornly high and we expect prices to fall by around 5% this year.
However, this isn’t the global financial crisis part two for house prices and any decline will be kept in check by rising wages, low unemployment, cash sales, record-high levels of housing equity, longer mortgages and savings amassed during the pandemic. The UK housing market is coming back down to earth after a strong three years, not falling off a cliff.”
This also isn’t the first report to show a fall in house prices. Last week, Nationwide reported that annual prices fell at the fastest rate since 2009.
The regional picture: Prices fall fastest in southern England
The South of England remains the area where house prices are facing the most downward pressure, as higher interest rates hit the market.
At -3.0%, the annual fall in the South East was the largest since July 2011, knocking the average price down to £384,106.
In London, prices fell by 2.6% – matching the national average fall – but the biggest drop recorded since October 2009. This pulled the average price of property sold in the capital to £533,057, a drop of around £15,000 over the last year.
Welsh house prices fell by 1.8%, the first annual fall in the principality sine 2013, while they were only slightly lower in Scotland (-0.1%, the first annual drop in three years).
Average house prices are now falling on an annual basis in most parts of the UK.
But the West Midlands (+1.5%), Yorkshire & Humberside (+0.2%) and Northern Ireland (+0.2%) bucked the trend.
The average price of new build property prices rose by 1.9% in the year to June – stronger than the wider market, but the slowest rate in over three years.
Existing properties, Halifax says “were instrumental in driving prices up during the pandemic related housing rush”, were down by -3.5% year-on-year in June. That was the steepest decline since August 2009.
Avg house prices begin to show signs of wear & tear as they fall for the 3rd consecutive month by -0.1% to £285,932. When pitched against June 2022 growth peak, house prices faired far worse decreasing by -2.6% = the largest fall since 2011 @HalifaxBank pic.twitter.com/uKpNVlVLOx
— Emma Fildes (@emmafildes) July 7, 2023
Here are the key points from Halifax’s new house price report, just released.
Average house price fell by -0.1% in June, a third consecutive monthly decline
• Annual rate of house price growth fell to -2.6%, from -1.1% in May
• Typical UK property now costs £285,932 (vs peak of £293,992 last August)
• New build prices more resilient compared to existing homes
• Southern England sees most downward pressure on property prices
Introduction: Halifax reports fall in UK house prices
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK house prices fell at the fastest annual pace since June 2011 last month, Halifax reports this morning, as interest rate rises cool the market.
The latest healthcheck on the UK housing market found that the average price of a home sold in June fell by 2.6% year-on-year, the largest drop in 12 years on Halifax’s index.
That follows a 1.1% fall in the year to May.
On a monthly basis, prices dipped by 0.1%, taking the average price to £285,932.
Kim Kinnaird, director at Halifax Mortgages, says:
With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer – annual growth peaked at +12.5% in June 2022 – supported by the temporary Stamp Duty cut.
Despite June’s dip, average house prices are actually up by +1.5% (or £4,000) so far this year. Most of that growth came in the first quarter of 2023, following the sharp fall in prices we saw at the end of last year in the aftermath of the mini-budget.
However, Kinnaird warns that the housing market remains sensitive to volatility in borrowing costs, adding:
Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.
“The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year.
Yesterday, financial data provider Moneyfacts reported that the average two-year fixed rate mortgage rose again to 6.52%, the highest since last October.
Reaction to follow….
Also coming up today
Financial markets are on edge after a sharp selloff in shares and bonds yesterday. It knocked the UK’s FTSE 100 down by 2.2% to its lowest closing level since last November, while government borrowing costs soared to a 15-year high.
The rout was triggered by fresh fears of higher interest rates, after US companies added many more jobs than expected last month, around 497,000.
Asia-Pacific stock have joined the selloff today, with Japan’s Nikkei down 0.5%.
Today we get the official US jobs report. which was expected to show an increase of 225k jobs, down from May’s 339K.
A strong jobs report could cause more market jitters, as good economic news will spur central banks to keep tightening policy.
The agenda
7am BST: Halifax house price index for June
7am BST: German industrial production for May
9.30am BST: An overview of UK productivity in January to March 2023
1.30pm BST: US non-farm payroll jobs report for June
3.30pm BST: Bank of England interest rate-setter Catherine Mann speaks in a panel discussion in New York
Updated
