Closing summary
Wall Street has opened flat to slightly higher after stronger-than-expected US jobs data. The Dow Jones was little changed while the Nasdaq edged 0.2% higher and the S&P 500 rose 0.3%.
Over here, the FTSE 100 index is 0.4% lower while the German and French markets are down 0.3% and 0.6% respectively.
The US workforce added 216,000 jobs last month, more than expected by economists, capping another robust year of growth in the face of higher interest rates.
Policymakers, weighing when to start cutting borrowing costs, are closely monitoring the strength of the labor market as they try to guide the world’s largest economy to a so-called “soft landing”, where price growth normalizes and recession is avoided.
American employers had been expected by economists to add about 164,000 jobs in December. Recruitment across the public, healthcare, social assistance and construction sectors helped drive growth as 2023 drew to a close.
However, the increases in US jobs in October and November were revised lower by a combined 71,000.
Inflation across the eurozone rose in December after an increase in energy costs, reversing six months of consecutive falls and easing the pressure on the European Central Bank (ECB) to cut interest rates.
Figures from the EU statistical agency Eurostat showed consumer prices across the 20-country bloc rose at an annual rate of 2.9% last month, up from 2.4% in November. Economists polled by Reuters had forecast a slightly higher reading of 3% for December.
The increase in the headline rate comes after the end of government support for utility costs, alongside a smaller annual decline in energy prices in December than in November connected to last year’s one-off subsidy in Germany.
Thank you for reading the blog. Have a great weekend! We’ll be back next week. – JK
Davies: 'did not intend to underplay serious challenges' for first-time buyers
NatWest Group chairman Sir Howard Davies has released a sort of mea culpa, a statement to clarify his earlier remarks that it’s not “that difficult” to buy a home and people just have to save for it.
He said he “did not intend to underplay the serious challenges” people face buying homes. The interview on radio 4’s Today programme this morning provoked outrage, including from campaign group Generation Rent. Critics said his claims showed he was out of touch with the reality faced by many people trying to buy a home.
Clarifying his remarks, Davies said:
Given recent rate movements by lenders there are some early green shoots in mortgage pricing and while funding remains strong, my comment was meant to reflect that in this context access to mortgages is less difficult than it has been.
I fully realise it did not come across in that way for listeners and as I said on the programme, I do recognise how difficult it is for people buying a home and I did not intend to underplay the serious challenges they face.
People have to save much more than they did in the past and that is tough for first-time buyers.
The role for banks in today’s environment is to lend responsibly and support customers to build a savings habit and move towards home ownership.
Torsten Bell, who runs the Resolution Foundation think tank, said the time required to save for a typical first-time buyer deposit has spiralled in recent years.
The dollar has given up the gains made since the US jobs numbers were released, as people realised they are not as strong as it first seemed.
The greenback is now flat against the pound and the euro, after jumping 0.5% and 0.6% respectively when the data came out just under an hour ago.
While employers hired 216,000 people in December, more than the 170,000 expected by Wall Street, the November and October increases in jobs were revised down by a total 71,000. The unemployment rate remained at 3.7%.
Axel Merk, founder of Merk Investments, said:
Much of early market reaction to non-farm payroll now muted - in part as market may be digesting that the total labor force dropped by 676,000 pic.twitter.com/wAwzRdMuTX
— Axel Merk (@AxelMerk) January 5, 2024
Updated
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said:
There are a few vital signs officials can monitor when trying to diagnose the health of the economy, and the labour market is a crucial one. Developments show that the US labour market isn’t losing steam, ultimately suggesting that economic activity will need a heavier hand to slow it down. That could see interest rate cuts across the pond pushed further out than hoped – bad news for the market, which until recently was pricing in heavy cuts this year.
The data has short-term implications, but the bigger question looks to the future. The resilience shown by the US labour market has been markedly stronger than predicted, which makes bringing things in line without triggering a rock-hard landing becomes a much more delicate task.
2023 overall was a bumper year for the labour market, and the overall temperature is still too hot to be fully comfortable. There’s every chance the Federal Reserve will demand a run of softer macro readings before hitting the rewind button on rates. It shouldn’t be forgotten that the rate of labour growth is slowing, which is a step in the right direction, but there’s work to be done.
Paul Ashworth, chief North America economist at Capital Economics, said:
The slightly bigger-than-expected 216,000 gain in non-farm payrolls in December coupled with a second consecutive 0.4% m/m gain in average hourly earnings means that this labour market report will trigger a further paring back of expectations for a March rate cut. At this stage, however, all that really matters for the Fed is the CPI and PPI data, due next week, which we expect to be more supportive of early action from the Fed.
The 216,000 gain last month, was not quite as good as it looks at first glance. Gains in the preceding two months were revised down by a cumulative 71,000. The increase in December was once again concentrated in only a few non-cyclical sectors, with government employment rising by 52,000 and health & social assistance employment up by 59,000. To the extent that it is still a leading indicator of broader employment trends, the 33,000 decline in temporary jobs is also a concern.
The unemployment rate remained unchanged at 3.7%, but only because a 676,000 drop back in the size of the labour force almost kept pace with a 683,000 decline in the household survey measure of employment. Those declines more than offset the big gains in November, meaning that both are now below the October levels. With the unemployment rate still muted, December brought a second consecutive 0.4% m/m gain in average hourly earnings, which was enough to push the annual rate back up to 4.1%, from 4.0%.
The dollar jumped after the stronger-than-expected increase in US jobs in December, as this suggests the Federal Reserve won’t be in a rush to interest rates.
The dollar index hit 103.10, a fresh two-week high, and is now at 102.75, up 0.3%.
The greenback strengthened as much as 0.5% against sterling and 0.6% against the euro. It is now trading 0.2% higher against the pound at $1.2650 and against the euro at $1.0917.
Updated
Some 52,000 new jobs were in government while 164,000 came from the private sector.
Here is our full story on the figures:
However, Peter Schiff, chief economist and global strategist at Euro Pacific Asset Management, tweeted:
Once again the media is focusing on Dec. non-farm payrolls beating estimates by 46K. However, the downward revisions to both Oct. and Nov. subtracted 71K from prior estimates. So the report is not a beat, it's another miss. Dec.'s number is likely to be revised lower next month!
— Peter Schiff (@PeterSchiff) January 5, 2024
Updated
US economy adds more jobs than expected
NEWSFLASH: The US economy added 216,000 jobs last month, more than expected, although the November and October increases were revised lower.
Economists had expected an increase between 150,000 and 170,000. November’s rise was revised to 173,000 from 199,000 while the October figure was also revised lower, to 105,000 from 150,000, according to the US Labor Department.
The unemployment rate stayed at 3.7%, while analysts had expected an uptick to 3.8%.
Updated
In the meantime, shares in London-listed Revolution Bars have plunged nearly 20% after the company said it would shut eight of its worst-performing bars to reduce future site losses.
The company’s bars and pubs trade under the Revolution, Revolución de Cuba and Peach Pubs brands.
The closed bars are: Revolution Bars in Beaconsfield, Derby, Reading, St Peters Liverpool and Wilmslow, Revolución de Cubas in Sheffield and Southampton and the Playhouse in Newcastle-Under-Lyme. Negotiations for five of the eight bars have already begun for them to be transferred to other operators or their leases rescinded.
The closures come despite a 9% rise in like-for-like sales in the four weeks from 4 to 31 December, the group’s best festive period since 2019. But it is worried about the current macro-economic conditions. Like-for-like sales for the first half, including New Year’s Eve, were on an improving trend but remained negative, with a decline of 2.8%.
Rob Pitcher, chief executive of Revolution Bars Group, said:
We have had the best festive trading period for four years with all of our brands recording positive like for like sales and Revolución de Cuba being the standout performer.
However, our younger customers are still feeling the disproportionate effect of the cost-of-living crisis and the national living wage will increase materially in April 2024. Therefore, we have taken the difficult yet ultimately beneficial step for the Group to close several bars which are unprofitable.
Updated
Less than 10 minutes to go until non-farm payrolls, a key US jobs report, for December. We are expecting an 150,000 increase in jobs after November’s 199,000.
The dollar is rising ahead of the data, heading for its steepest weekly rise since May, as traders are scaling back expectations of early US interest rate cuts this year.
The dollar is up 0.2% against a basket of currencies, after touching a fresh three-week high. The index is up 1.3% this week so far, its strongest performance since the week to 15 May.
The chair of NatWest Group, Sir Howard Davies, has been criticised as being out of touch, after he said it was not “that difficult” buy a house at the moment.
The campaign group Generation Rent said Davies’s comments were “astounding to hear from a senior banker”.
Here is our full story:
Torsten Bell, chief executive of the Resolution Foundation, a think tank, tweeted:
What's changed of course is how long you have to save for https://t.co/aVqg0cLCd3 pic.twitter.com/UTeiNAdw2i
— Torsten Bell (@TorstenBell) January 5, 2024
Updated
If your home has been flooded, here’s the ABI’s six flood recovery steps:
Step 1 - Contact your insurer as soon as possible. They will advise you on arranging emergency accommodation if necessary (or any temporary alternative trading premises if you are a business with business interruption cover), the information they will need from you to support your claim, and how to go ahead with the immediate clean-up and repair process.
Step 2 - Assessing the damage and finding temporary accommodation. A loss adjuster will be appointed to assess the claim. An initial assessment of the damage will be done, the repair process explained and the options for alternative accommodation outlined. You should expect to hear from your loss adjuster after contacting your insurer and they will get in touch if they need to arrange a visit to your home.
Step 3 - Cleaning and stripping out. Your loss adjuster will organise the cleaning and stripping out of your home. This work should start within four weeks of discussing it with your loss adjuster.
Step 4 - Disinfecting and drying your home. Your insurer or loss adjuster will appoint a drying company to disinfect and dry out your home. This can take from a few weeks to several months. Your loss adjuster will give you a timetable and keep you informed.
Step 5 - Repair and reconstruction. Repair work should begin shortly after you get your drying certificate from the drying company. Your loss adjuster will appoint a builder to do the repair and reconstruction work and will keep you updated on expected timeframes.
Step 6 - Moving back into your home. Your insurer or loss adjuster will discuss with you when you can return home. Depending on how badly damaged your home is, this can be between a few weeks and a year or more after the flood.
Some insurers will provide “Build Back Better” which offers homeowners the chance to install Property Flood Resilience measures up to the value of £10,000 when repairing their properties after a flood. Speak to your insurer about whether you are eligible.
The ABI’s guide is here.
Here is some insurance advice for homeowners and businesses who have been affected by flooding and storm Henk, from the Association of British Insurers.
Damage caused by floods and storm is covered by most standard home insurance and commercial business policies, and comprehensive motor insurance.
Louise Clark, general insurance policy adviser at the industry body, said:
Insurers expect bad weather to strike at any time and events such as this are exactly what your insurance is for. Their priority right now is to help any affected customers recover as quickly as possible. If you have been affected by flooding, contact your insurer as soon as you can and they will be able to offer help and advice.
If you have suffered storm damage:
· Contact your insurer as soon as possible. Most will have 24-hour emergency helplines to ensure you get advice on what to do and arrange repairs as quickly as is possible.
· If necessary, arrange temporary emergency repairs to stop any damage getting worse, but speak to your insurer first. If you have to arrange emergency repairs yourself, tell your insurer and keep any receipts, as this will form part of your claim.
· Do not be in a rush to throw away damaged items, unless they are a danger to health, as these may be able to be repaired or restored. Your insurer will advise.
If your home is uninhabitable while repairs are being carried out your insurer will arrange for, and pay the cost of, any alternative temporary accommodation you may need in line with your policy.
Commercial polices will cover damage to premises and stock. Business interruption cover (which may be included or purchased separately) will cover additional trading costs, such as hiring temporary alternative trading premises if necessary.
Here is the guidance in full.
Updated
Overall in the UK Construction PMI, construction new work fell in December & it has been falling since August, which points to further falls in construction activity in 2024 H1 (especially in house building) but... (11/n)#ukconstruction pic.twitter.com/xNuqdQXsZf
— Noble Francis (@NobleFrancis) January 5, 2024
UK's construction sector decline eases
The downturn in the UK’s construction sector eased last month to the slowest rate of decline since September, according to a survey.
A sustained slump in house building was the main factor holding back construction output, which firms linked to elevated interest rates and subdued confidence among clients.
The headline purchasing managers’ index, which tracks changes in industry activity, rose to 46.8 in December from 45.5 in November. Any reading below 50 indicates contraction.
Improving supply conditions meant delivery times for construction items shortened for the tenth month in a row. Price discounting among suppliers contributed to a moderate fall in average cost burdens across the construction sector at the end of 2023.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said:
Construction companies experienced another fall in business activity at the end of 2023 as weak order books meant a lack of new work to replace completed projects. House building was the worst-performing area of construction activity, but even in this segment there were signs that the downturn has started to ease. “
Elevated borrowing costs and a subsequent slump in market confidence were the main factors leading to falling sales volumes across the construction sector in the second half of 2023. Survey respondents also continued to cite worries about the broader UK economic outlook, especially in relation to prospects for commercial construction.
However, expectations of falling interest rates during the months ahead appear to have supported confidence levels among construction companies. December data indicated that 41% of construction firms predict a rise in business activity over the course of 2024, while only 17% forecast a decline. This contrasted with negative sentiment overall at the same time a year earlier.
Industry expert Noble Francis tweeted:
UK construction activity fell in December 2023 according to the latest S&P Global UK Construction PMI data (46.8) but it fell a slower rate than in November (45.5) where 50=no monthly change (& below 50 represents a decline in activity). (1/n)#ukconstruction #ukhousing pic.twitter.com/e05nWmG8Vb
— Noble Francis (@NobleFrancis) January 5, 2024
The December uptick in eurozone inflation will prove temporary, says Nicola Nobile, chief Italy economist at Oxford Economics.
As anticipated by yesterday’s national numbers, eurozone inflation rate increased in December. But this was mainly driven by the energy component. German energy inflation, up to 4% was the main culprit as energy inflation was impacted by a strong base effect from the one-off gas price break in December 2022.
Apart from energy, all the other components continued their disinflationary trend. Although some of the components, such as food remain elevated and subject to some volatility, the disinflation dynamic is still quite clear. Food inflation (which also includes alcohol and tobacco) was at 6.1% in December, down from around 10% in the summer. Moreover, the second monthly increase in unprocessed foods inflation was very likely driven by unfavourable weather conditions and hence should soon readjust downwards.
Core inflation dropped to 3.4%, from 3.6% in November, driven by a decrease in non-energy industrial goods inflation. Services inflation remained at 4% over the year, but also in this area the monthly dynamic offers some optimism. The 0.7% m/m increase in services inflation is a touch lower than the 2010-2019 average December monthly increase…
Overall, apart from the monthly volatility, this was another encouraging inflation report and further confirms that a quick disinflationary process is underway. But today’s print will not offer any major insights on the ECB easing cycle. We expect that the January inflation print will be much more informative, as large price adjustments typically happen at the start of the year, with this year’s January print also impacted by the end of the energy-related fiscal measures in some countries. We will follow up on this specifically in forthcoming research.
Bert Colijn, senior eurozone economist at ING, said:
The increase in headline inflation was mainly driven by energy base effects in Germany. The core inflation rate dropped from 3.6 to 3.4%, indicating that the underlying trend in inflation remains relatively benign for the moment. Food inflation also continued to trend down rapidly.
Inflationary pressures made way for disinflation over the course of 2023 as demand weakened and supply shocks faded. This has brought inflation down more than expected at the start of last year. Currently though, base effects from easing supply shocks are moderating and some new inflationary concerns are surfacing. Think of the increased supply chain concerns related to the Red Sea. Besides that, German government measures are also adding to inflation for 2024. The European Central Bank’s mantra has always been that the last leg is the hardest. Is this what we are currently witnessing?
Don’t overestimate the inflationary pressures for now though. Demand remains weak, which is a very important disinflationary driver right now. Also, inventories are high, making current supply chain concerns much less inflationary than the ones from 2021. And even though energy price shocks related to the Middle East are a clear risk to the outlook, oil prices are currently still below US$80 per barrel. So overall, the outlook for inflation continues to be quite benign and we expect eurozone inflation to be around 2% again by the end of the year.
And what does this mean for interest rates?
Current inflationary developments therefore seem to support our view that recent market expectations of a first-quarter hike are premature, but don’t think that we’re back to ‘higher for longer’ either. We expect the ECB to start cautiously cutting rates from June onwards, with 75bp in total for 2024.
NatWest boss: Not 'that difficult' for people to buy a house
Sir Howard Davies, chair of NatWest Group, has caused a bit of a stir with his comments this morning that it’s not “that difficult” for people to get on the housing ladder.
He said on BBC radio 4’s Today programme:
I don’t think it’s that difficult at the moment [to buy a house]. You have to save, and that’s the way it always used to be…
But what we saw in the financial crisis was the risk of having people being able to borrow 100% In order to get onto the property ladder and then suffering severe falls in the equity value of their houses and having to leave and having a bad credit record etc. So there were dangers in very, very easy access to mortgage credit.
So I totally recognise that there are people who find it very difficult to start the process. They will have to save more. But that is, I think, inherent in the change in the financial system, as a result of the mistakes that were made in the last global financial crisis and we have to accept we’re still living with that.
Updated
Electric car sales in UK flatline, prompting calls for VAT cut
The number of new cars registered in the UK has jumped by nearly 18% but electric vehicle demand is flatlining, prompting the industry to call for a VAT cut to stimulate sales.
Annual figures released by the Society of Motor Manufacturers and Traders (SMMT) on Friday show 1.9m new cars were registered last year, well up on the previous year’s figure of 1.6m and the highest level since the 2.3m registrations of 2019.
The increase is a boost for the automotive industry after the pandemic led to supply chain problems and a shortage of vital computer chips that slowed production.
Across the year, 315,000 new battery electric vehicles were sold. That was 50,000 more than 2022, but the number being bought as a share of total registrations failed to grow as expected. They represented just 16.5% of the total, slightly down on last year’s 16.6%.
Eurozone inflation rises to 2.9%
Inflation in the eurozone has risen again and could go higher in the coming months, which makes early interest rate cuts from the European Central Bank less likely.
Inflation across the 20-nation bloc rose to 2.9% in December from November’s two-year low of 2.4% because of a reduction of government subsidies on gas, electricity and food.
The data are in line with the ECB’s expectation that inflation bottomed out in November. The central bank is projecting that price growth will range between 2.5% and 3% through 2024, well above its 2% target, before slowing again next year.
However, underlying inflation – price growth excluding food and energy which tend to be volatile – eased to 3.4% from 3.6%.
The ECB, which next meets on 25 January to discuss monetary policy, pushed back against investor expectations of imminent rate cuts last month. It wants to see wage pressures cool first to ensure infation is on track to fall back to its target.
Neil Wilson, chief market analyst at Finalto Financial Services, said:
European stock markets slipped in early trading, pushing the main indices firmly into the red in the first week of trading in 2024 as the data paints a picture of weakening economic activity and higher inflation.
Weak PMI data for the euro area was confirmed, whilst German consumer inflation surged higher as energy subsidies faded. German’s inflation hit 3.8% in December, up from 2.3% in Nov. Final inflation data for the Eurozone as a whole is due at 10am, expected up to 3.0% from 2.4%.
Meanwhile FOMC minutes earlier this week suggested the Fed is not quite so close to cutting rates; the US 10-year Treasury yield broke above 4%, helping the dollar hit its highest since the middle of December and keeping the pressure on risk assets.
Shares in London, Frankfurt and Paris all retreated on Friday morning, with the US jobs report in focus. The Nasdaq notched its fifth straight daily decline on Thursday, whilst the S&P 500 dropped for a fourth session in a row with Apple suffering again on another downgrade. For the week, the FTSE 100 is off about three-quarters of a percent, held up relative to peers with oil firmer, whilst the Dax is down 1.4% and CAC is 2% lower with luxury taking a bit of a bashing on China fears.
Stocks fall; crude oil prices rise over 1%
On the financial markets, stocks are falling while crude oil prices have risen more than 1% amid tensions in the Middle East.
Brent crude futures are up 87 cents at $78.46 a barrel while US light crude is 97 cents ahead at $73.16 a barrel. US secretary of state Antony Blinken is heading to the Middle East for a week of diplomacy to try and prevent the Israel-Gaza conflict from widening. You can read more here:
Attacks by Iran-backed Houthi rebels from Yemen on commercial ships in the Red Sea have also triggered supply concerns.
On the stock markets , the FTSE 100 index has fallen nearly 67 points, or 0.9%, to 7,656, as optimism about interest rate cuts fades.
Germany’s Dax is down 105 points, or 0.6%, at 16,513 while France’s CAC has lost 66 points, a 0.9% drop to 7,384. Italy’s FTSE MiB has shed 184 points, or 0.6%, to 30,221.
NatWest chair: Likely we will see slow reduction in interest rates
Sir Howard Davies, who chairs NatWest, has warned that we we could see a “rather slow reduction in interest rates” this year because “wage expectations are quite high”.
Speaking on radio 4’s Today programme, he explained why lenders have already started to cut mortgage rates in a fierce price war. As financial markets are now expecting a series of rate cuts from the Bank of England this year,
therefore you can, as a bank, fix your interest rate at a slightly lower level than you could even a couple of months ago. And it’s that fixing of the rates in the market that determines what we can offer to customers. So the market expectations of rates are falling, therefore, we can pass that on to people who want a new mortgage.
He said because the Bank of England was criticised for being slow to raise interest rates when inflation shot up mainly due to higher energy and food prices, policymakers will be careful when they reduce borrowing costs.
Even at the last meeting in December, three of the nine members of the [rate-setting] committee still voted for a further increase in rates. So they’re quite a long way away at the moment from a majority in favour of a reduction in rates. And there is a risk of that, having been burned once by reacting too slowly. They are now going to be rather cautious in coming down.
It’s likely that we will see a rather slow reduction in rates during the year. They will of course be influenced by what is going on in retail prices, not rising anything like as rapidly as they were, but still wage expectations are quite high and that if you read the recent speeches from the Bank of England, thats what’s worrying them the most.
Here’s a lookahead to what 2024 might bring in the housing market:
The EY Item Club forecasting group said the 1.1% month-on-month rise in the Halifax measure of house prices in December capped off a year when values proved much more resilient than forecasters had expected.
An average of the Halifax and Nationwide measures was down 1.5% in the fourth quarter on a year earlier, in contrast to consensus predictions last January of a fall of 6.5%.
Martin Beck, chief economic adviser to the group, said:
Two factors have led to a modest correction. Firstly, unemployment has remained low. Secondly, the rise in mortgage interest rates has been much more protracted than in the past, reflecting a shift in the mortgage stock from variable to fixed rate. Both factors have kept forced sales down and limited supply.
The closing months of 2023 saw a recovery in demand for properties, albeit from a low level. Mortgage approvals in December rose to a six-month high. This was probably aided by falling mortgage rates, as investors have priced in a substantial series of rate cuts by the Bank of England this year.
The EY Item Club thinks this recovery should continue as mortgage rates continue to drift down and lower inflation makes for a likely more predictable macroeconomic outlook. The fact that the ratio of house prices to average earnings is down by over a tenth since the 2022 peak, reflecting a fall in prices alongside strong growth in wages, should also support demand.
This can cause a lot of stress and sleepless nights. My colleague Jedidajah Otte has talked to homeowners who fear a sharp rise in mortgage payments as they come off fixed-rate deals this year.
However, mortgage costs are still much higher than they have been in recent years after the Bank of England raised interest rates to 5.25% to fight stubbornly high inflation. (Financial markets expect it to cut rates to below 4% by the end of the year.)
As a result, homeowners are facing a £19bn increase in mortgage costs as millions more fixed-rate deals expire and borrowers are forced to renegotiate their home loans after the toughest round of interest rate increases in decades, writes our economics correspondent Richard Partington.
Despite an escalating price war between lenders cutting the cost of remortgaging in recent days, economists at the US investment bank Goldman Sachs said many UK households would still experience a dramatic leap in repayments compared with the deals they were leaving behind.
In what has been described as a Tory mortgage timebomb by Rishi Sunak’s critics, just over 1.5m households are expected to reach the end of cheaper deals in 2024 – with an increase in annual housing costs of about £1,800 for the typical family, according to the Resolution Foundation thinktank.
As fixed-rate deals expire and households absorb the biggest hit to their finances in the postwar age, with inflation and tax rises taking their toll on spending power, borrowers are turning to a range of measures to cope with the increased costs, from renting out rooms in their homes to drawing down pensions early and even postponing having children.
Updated
Anthony Codling, housing analyst at RBC Capital markets, said:
The demise of the UK housing market is somewhat over reported. The Halifax reported today that house prices rose by 1.7% in 2023, an increase of £4,800. Most, including us, thought house prices would fall during 2023, and most think they will fall in 2024, but not us.
With rising wages, falling inflation, falling mortgage rates, and increasing talk of election related housing stimulus packages we expect house prices to rise in 2024. Our pessimism was misplaced in 2023, and we don’t want to make the same mistake twice.
Updated
Introduction: UK house prices rise for third month amid property shortage
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
House prices in the UK rose for the third consecutive month in December, reflecting a shortage of properties on the market, according to mortgage lender Halifax. It added that with mortgage rates easing, confidence among buyers may improve in the coming months.
The cost of an average home rose by 1.1% to £287,105, just over £3,000 more than in November and the highest level since March, Halifax said. This comes after monthly gains of 0.6% and 1.2% in November and October.
Compared with December 2022, values were up 1.7%, the first annual growth in eight months, following a 0.8% drop in November.
Kim Kinnaird, director of Halifax Mortgages, said:
The housing market beat expectations in 2023 and grew by 1.7% on an annual basis. The average property price is now £4,800 higher than it was in December 2022. Whilst it’s encouraging that we saw growth in the last three months of the year, this was preceded with property price falls for six consecutive months between April and September.
The growth we have seen is likely being driven by a shortage of properties on the market, rather than the strength of buyer demand. That said, with mortgage rates continuing to ease, we may see an increase in confidence from buyers over the coming months.
Across all the UK regions, Northern Ireland recorded the strongest house price growth in 2023, as properties increased in value by 4.1% to £192,153. Scotland saw property prices increase by 2.6% to £205,170. At the other end of the scale, the south east fell most sharply, houses there now average £376,804, a drop of £17,755 or 4.5%.
Halifax expects prices to fall by between 2% and 4% this year as many still struggle to afford the sharply higher mortgage costs compared with recent years following a series of Bank of England rate hikes. The question is when will the central bank start cutting rates? Financial markets are betting that the first reduction will come by May.
Kinnaird explained:
As we move through 2024, the UK property market will continue to reflect the wider economic uncertainty and buyers and sellers are likely to be naturally cautious when considering making a move. While wage growth is now above inflation, helping to ease cost of living pressures for some and improving housing affordability, interest rates are likely to remain elevated for as long as inflation remains markedly above the Bank of England’s target.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said:
The housing market saw a remarkably strong finish to the year, as buyer and seller confidence was boosted by three consecutive interest rate holds and the growing belief that the next move in rates will be downwards.
Increased competitiveness among lenders leads to lower mortgage rates and we find ourselves in the midst of a price war. With HSBC launching the headline-grabbing 3.94% five-year fix and reductions from Halifax, NatWest, TSB and other lenders, the gloves really are off.
With 2023 being a disappointing year in terms of amount of business done, lenders are keen to get this year off to a cracking start. Increased competition, rates aside, may also lead to lenders broadening criteria to attract business with longer mortgage terms or greater flexibility to allow certain variable incomes. Although those remortgaging this year will still see an increase in their payments, the pain will not be as bad as it could have been.
Later today we will get the US non-farm payrolls report for December, which is expected to show that the economy added 150,00 jobs following November’s 199,000 increase.
The Agenda
9.30am GMT: S&P Global/CIPS Construction PMI for December
10am GMT: Eurozone inflation for December (forecast: 2.9%)
1.30pm GMT: US Non-farm payrolls jobs report for December (forecast: 150,000)
Updated
