![Let by signs outside a block of flats in Slough.](https://media.guim.co.uk/1fdd9df29a96ea231f4f2272a008b5c8f3d021b6/0_229_4500_2700/1000.jpg)
Afternoon summary
Time for a recap.
Residential rents across Britain are rising at their fastest on record, as high interest rates push up costs for landlords and shut would-be buyers out of the property market.
Hamptons reports that the average rate of annual rental growth on a newly-let property hit 12.0% in August, the fastest growth since its index started in 2014. The average monthly rent for a newly-let home in August was £1,304.
“Forces slowing property purchases are leaking into rentals & helping fan inflation-busting inc’s in the cost of lettings.” A shortage in rentals is compounded by anemic construction levels @BloombergUK @Hamptons1869 pic.twitter.com/kIrduJIHpK
— Emma Fildes (@emmafildes) September 18, 2023
UK house sellers are cutting their asking prices at the fastest rate in more than a decade, after high interest rates dampened demand for property this summer.
The Rightmove index is just new listings.
— Neal Hudson (@resi_analyst) September 18, 2023
They also report "36.3% of properties currently for sale have had a price reduction, with an average reduction equating to £22,700 nationally (6.2%)" https://t.co/wQjlGCRpUp
The eurozone will suffer a “mild technical recession” in the second half of this year, S&P Global Market Intelligence have predicted.
Sir Martin Sorrell’s digital marketing group S4 Capital has cut 500 jobs in the face of a plunge in spending from clients fearful of an impending recession.
The number of pubs in England and Wales that shut their doors for good has risen sharply this year….
…while UK manufacturers are cutting back on their hiring plans, as output and new orders slow.
Britain’s competition watchdog has warned that artificial intelligence could lead to a proliferation of false information, fraud and fake reviews as well as high prices for using the technology, hurting consumers.
Financial markets should be wary of stubborn inflation and a sharper economic slowdown next year than forecasters predict, the Swiss-based adviser to central banks has warned.
Prospective investors in the proposed Sizewell C nuclear power plant in Suffolk will undergo “strict national security checks”, the government has said, as it formally kicked off a hunt for outside investment.
Updated
Over in New York, the head of the International Monetary Fund has just rung the Wall Street Opening Bell.
IMF managing director Kristalina Georgieva did the honours, kicking off the new US stock trading week.
The NYSE welcomes the International Monetary Fund to recognize the 78th Session of the @UN General Assembly. Kristalina Georgieva, Managing Director of the IMF, rings the Opening Bell. #UNGA78 @IMFNews | @KGeorgieva | @JRTuttle https://t.co/AaucnRhEMG
— NYSE 🏛 (@NYSE) September 18, 2023
So far, the Dow Jones industrial average is up just 12 points or 0.04% at 34,631 points, while the broader S&P 500 index is down 0.1%.
#WallStreet, avvio debole
— Class CNBC (@classcnbc) September 18, 2023
-Dow sulla parità
-Nasdaq -0,2%
-S&P 500 -1%
A suonare la campanella al NYSE Kristalina Georgieva, n.1 del FMI#Bitcoin in rialzo (+3%) sopra 27.300$ pic.twitter.com/DYmUIvwagy
Updated
'Mild technical recession' forecast in eurozone
S&P Global Market Intelligence are predicting a “mild technical recession” in the eurozone, in the second half of this year.
The group have cut their forecasts for the eurozone economy this year, as high interest rates hit its economy.
Diego Iscaro, head of European economics at S&P Global Market Intelligence, explains:
“High-frequency indicators continue to paint a deteriorating picture, as the post-pandemic boost from the release of pent-up demand in the service sector fades. The increase in interest rates by the ECB in September will accentuate the drag from monetary conditions, which is still to fully play out.
Easing inflation will provide some support to households’ finances, but this is likely to be at least partially offset by cooling labour market conditions and faltering fiscal support. We continue to see risks to the growth outlook on the downside”.
Last week the European Central Bank raised its benchmark interest rate to record high levels.
More broadly, S&P Global Market Intelligence have raised its forecast for global growth this year to 2.6%, partly due to “strong momentum in the US”.
A second Wall Street bank has predicted that the Bank of England will pause its interest rate hiking cycle, after this week’s meeting.
US bank Citi have forecast the Bank of England will halt its run of interest rate increases after a hike on Thursday – as Goldman Sachs also predicted (see earlier post).
Citi also believe there is a small chance that the BoE pauses its hiking cycle this Thursday.
They told clients:
“With the agenda moving quickly, we think 1) a pause should not be dismissed; and 2) this week’s move is probably the last,”
“We now look for no change in November, with a full set of forecasts plausibly providing a basis to pause. We continue to see cuts from May 2024.”
Citi: This week's expected rate hike by the BoE will probably be the last in the cycle, we no longer expect a November change.
— DailyFX Team Live (@DailyFXTeam) September 18, 2023
Wednesday’s inflation report, which is expected to show a small rise in the CPI rate of inflation, will influence the Bank’s decision….
The UK’s Office for Budget Responsibility have rejected an allegation from Liz Truss today that leaked forecasts from the OBR brought down her mini-budget.
Truss, in her speech this morning, claimed that a leak from the OBR saying her policies would cost £70bn forced a u-turn on the mini-budget.
But in response, an OBR spokesperson said:
“The former Prime Minister’s statement is incorrect. We provided our advice on the economic and fiscal implications of the Growth Plan (the so-called ‘mini-Budget’) exclusively to the Chancellor and Treasury on Friday 7 October 2022.
A full timetable of our interactions with the Government over the Autumn of 2022 is published in the Foreword to the November 2022 Economic and fiscal outlook.”
NEW 🚨
— Faisal Islam (@faisalislam) September 18, 2023
OBR hits back immediately re Truss accusation of leak forcing her to u-turn on mini budget:
“The former PMs statement is incorrect. We provided our advice on economic & fiscal implications of the Growth Plan (‘mini-Budget’) exclusively to Chancellor & HMT on 7 Oct 2022”
Here’s Truss’s quote, in a post from the BBC’s Faisal Islam:
“I didn't realise before I got into No 10 is just sheer level of power that an organisation like the OBR has, because after immediate aftermath of LDI crisis, there was leak by OBR of a £70bn hole thats, in essence, what forced us to reverse the decision on corporation tax” Truss
— Faisal Islam (@faisalislam) September 18, 2023
She said:
“I didn’t realise before I got into No 10 is just sheer level of power that an organisation like the OBR has, because after immediate aftermath of LDI crisis, there was leak by OBR of a £70bn hole thats, in essence, what forced us to reverse the decision on corporation tax”
My colleague Richard Partington is also personally intrigued by this ‘leak’ that Truss talks about..., telling me:
I seem to remember we were the only ones carrying the £70bn figure she’s speaking of, from this piece of mine at the time [7th October 2022]:
There may have been other reports at the time but I can’t find them now. And have a memory that the piece I wrote was something of a scoop.
It wasn’t so much a leak, though, unfortunately! Just that I had got an ex-OBR official to speculate on the scale of the ‘black hole’... Was it the Guardian wot did for her?!
BIS warns of sharper economic slowdown and tougher inflation
Financial markets should be wary of stubborn inflation and a sharper economic slowdown next year than forecasters predict, the Swiss-based adviser to central banks has warned.
The Bank of International Settlements said exuberant stock markets were at risk of ignoring the negative aftershocks from persistent inflation, which could trigger a wave of insolvencies and a steep fall in property prices.
Claudio Borio, the organisation’s chief economist, said it was clear that there was a squeeze on credit growth, indicating that banks were putting up the cost of borrowing and restricting access to credit, forcing firms closer to bankruptcy.
Property prices were also falling, he said, calling into question how the financial system will absorb the losses. More here….
The Bank of England isn’t certain to raise interest rates at its next meeting on Thursday, although another hike does seem likely.
Currently, the money markets indicate there is an 80% chance that rates are lifted from 5.25% to 5.5%, and just a 20% prospect of no change.
ING’s developed markets economist, James Smith, explains that the BoE’s focus is on how long rates remain in restrictive levels, so a pause can’t be totally ruled out:
“The Bank has made it abundantly clear that it thinks keeping rates elevated for a long period of time is now more important than how high they peak. This is a simple reflection of the UK mortgage market, where roughly 85% of lending is fixed, albeit for a relatively short amount of time.
The average rate being paid on outstanding mortgages has risen from 2% to 3% so far, and we expect that to rise above 4% next year even if the BoE doesn’t hike rates any further. That’s why the Bank is making it its mission to convince investors that rates need to stay high for a long time, and any further rate hikes should be seen as a tool to meeting this end.
It does feel like the Bank is actively trying to set the stage for a pause. Could that happen this week? We wouldn’t totally rule it out. A strategy, whereby the BoE pauses in September but hints strongly that it could hike again in November, could be tempting for policymakers this week.
Having said all that, though, ING still expect the Bank to raise interest rates on Thursday, for the last time in this cycle.
House price growth in Ireland has slowed.
Irish house price growth slipped year-on-year in July to its lowest rate in almost three years, increasing by 1.5%, data from the Central Statistics Office shows.
Prices in Dublin decreased by 1.4% year on year, while prices outside Dublin rose by 3.8%.
On a monthly basis, prices rose 0.3% in July, adding to gains in June, after dropping from January to May.
The number of sales fell year-on-year too, as Niall Corkery, Statistician in the Prices Division, explains:
In July 2023, 4,174 dwelling purchases by households at market prices were filed with the Revenue Commissioners, a decrease of 6.1% compared with the 4,443 purchases in July 2022.
People and businesses could be harmed by the new wave of artificial intelligence systems if competition is weak or developers fail to heed consumer protection law, the UK’s competition watchdog has warned.
The Competition and Markets Authority fears that people could be exposed to significant levels of false and misleading information and AI-enabled fraud.
In the longer term, the CMA warns, a handful of firms could use foundation models (FMs) such as ChatGPT to gain or entrench positions of market power and fail to offer the best products and services, or charge high prices.
The CMA is proposing new ‘guiding principles’:
Accountability – FM developers and deployers are accountable for outputs provided to consumers.
Access – ongoing ready access to key inputs, without unnecessary restrictions.
Diversity – sustained diversity of business models, including both open and closed.
Choice – sufficient choice for businesses so they can decide how to use FMs.
Flexibility – having the flexibility to switch and/or use multiple FMs according to need.
Fair dealing – no anti-competitive conduct including anti-competitive self-preferencing, tying or bundling.
Transparency – consumers and businesses are given information about the risks and limitations of FM-generated content so they can make informed choices.
Today, our CEO, Sarah Cardell, has launched our initial report into #AI Foundation Models, which proposes new principles to support competition and protect consumers.
— Competition & Markets Authority (@CMAgovUK) September 18, 2023
Find out more: https://t.co/dLANtGBOZu pic.twitter.com/JMlZ4ShZ0Z
In the financial markets, the pound has touched its lowest level since early June.
Sterling slipped to $1.2368 against the pound, a 15-week low.
Back in mid-July, the pound was trading over $1.31, but it has slipped back following signs that UK inflation was falling.
That would take pressure off the Bank of England to raise borrowing costs, with interest rates now expected to peak at 5.5%, not over 6% as feared this summer (they’re 5.25% at present, but may rise on Thursday).
Updated
Sorrell's S4 cutting jobs after downgrading outlook again
Digital marketing group S4 Capital has cut 500 jobs after revenues and profits were hit by a cut in spending by fearful clients.
S4’s shares are now down 27% after cutting its annual forecast this morning (see earlier post).
The company said that it has cut the number of employees - known as Monks - from 9,041 to 8,550 at the end of June compared to the same point last year.
S4 Capital said that it has seen inflation in staff costs and higher IT costs with more job cuts looming as the company said the it would “continue to take action, especially in its content division, “given the current market outlook”.
The company relies on technology clients, which have reigned in spending, which accounted for just under 50% of total revenues last year.
“Advertising agencies are at the mercy of the economy,” said Russ Mould, investment director AJ Bell.
“Martin Sorrell’s digital advertising agency is currently suffering from subdued client activity – its customers are worried about recession so they are cautious about signing off big advertising campaigns.”
Some early key points from the Liz Truss speech (full coverage here).
About to listen to Liz Truss speech at @instituteforgov - roughly 12 months after the #miniBudget pic.twitter.com/kcByaUyilk
— Ben Chu (@BenChu_) September 18, 2023
…. “I'm having a rather less busy September this year than I had last year.” pic.twitter.com/cpyG6CuCPX
— Ben Chu (@BenChu_) September 18, 2023
🚨📈 Liz Truss blames the “reaction” from the “political and economic establishment” to her policies as the reason they failed
— Bethany Dawson (@bethanymrd) September 18, 2023
As Conservatives we must make the case for less government intervention and admit that the state is too big. #IfGTruss pic.twitter.com/TMx7VhUlaT
— Liz Truss (@trussliz) September 18, 2023
It’s almost a year since Liz Truss’s government crashed the bond market, and the pound, with the ill-planned mini budget.
And today, former PM Truss is giving a speech defending that fiscal event, denying she is to blame for the UK’s current economic problems.
Truss is expected to argue that “25 years of economic consensus” are to blame, and say:
“I believe that the reason for the problems we have is the 25 years of economic consensus that have led us to this period of stagnation
“And I believe it is vital that we understand that and shatter that economic consensus, if we are to avoid worse problems in the future.”
Truss is also insisting that her planned tax cuts were not unfunded, claiming that cutting the higher rate of Income Tax and the ‘tourist tax’ would have lifted, not cut, tax revenues.
Rupert Harrison, George Osborne’s former chief of staff, argues this is nonsense.
Even on its own terms this still leaves £25 billion of permanent additional borrowing at a time when the main issue was inflation.
— Rupert Harrison (@rbrharrison) September 18, 2023
But the CEBR costings are also wildly optimistic, and it's factually incorrect to say that the OBR models are static. pic.twitter.com/i70bvFos8K
Our Politics Live blog is tracking all the action:
Susannah Streeter, head of money and markets at Hargreaves Lansdown, agrees that UK interest rates are probably near their peak… but they may not fall until the second half of 2024.
She writes:
The Bank of England is expected to proceed with another hike on Thursday, given that wage inflation is still considered to be far too hot to ignore. Wednesday’s inflation snapshot will be closely watched for signs that core inflation, which strips out the volatile food and energy prices, is still proving sticky.
However, the cost-of-living crisis, high borrowing costs, bad weather and strikes all conspired to cause the economy to contract in July. Residential rents are now rising at their fastest rate on record, chipping away more consumer resilience. Monthly rents are on average 12% higher than they were just a year ago according to Hamptons, as people put off house moves, and competition intensifies, and landlords hit by higher borrowing costs charge more.
The stage is set for more demand to be squeezed out of the economy, which should help limit price rises in the economy going forward. So, the September rate decision may well mark the end of the hiking cycle, given that unemployment has also ticked up, companies are showing more reluctance to hire staff and we have still yet to feel the full effect of previous rate increases.
But higher rates are set to linger given that the 2% inflation target still seems so far away, so right now a cut isn’t expected until at least the second half of next year.
Data provider Moneyfacts reports that the average rate on two-year fixed mortgages has risen today, but five-year fixed loans are a little cheaper.
They say:
The average 2-year fixed residential mortgage rate today is 6.66%. This is up from an average rate of 6.62% on the previous working day.
The average 5-year fixed residential mortgage rate today is 6.08%. This is down from an average rate of 6.11% on the previous working day.
Oil has hit its highest level of the year, again, this morning, threatening to undermine the fight against inflation.
Brent crude has gained 0.75% this morning to $94.65 per barrel, the highest since last November.
Some analysts predict oil could hit $100/barrel soon, having climbed by almost a third since June – a move which has already pushed up fuel prices.
In the City, shares in Sir Martin Sorrell’s advertising group S4 Capital have tumbled by a fifth, after it lowered its annual forecast again this morning.
S4 now expects like-for-like net revenue to fall year-on-year, the second cut to its forecasts this summer.
S4, which Sorrell has been building into a new age digital advertising, marketing and technology services company, blames challenging macroeconomic conditions.
This has made its clients more cautious, particularly in the technology space.
Sorrell, executive chairman of S4 Capital, said:
“We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.”
Updated
Here’s Victoria Scholar, head of investment at interactive investor, on today’s reports on the UK housing market:
“Rightmove said UK asking prices rose by 0.4% in September after falling by 1.9% in August. However, the rise is below the ten-year average of 0.6%, home sales are down 7% versus 2019 pre-covid and asking price reductions reached a 12-year high. Nonetheless, the property website expects the market to pick up in autumn as mortgage rates ease. It said the number of homes on the market rose by 12% in the first week of September already.
The latest figures from Rightmove point to green shoots of recovery for the housing market with a slight pick-up in asking prices in September, a typically busy back-to-school time of year for housing market transactions after the end of the summer lull and before the festive season begins. While the Bank of England’s aggressive stream of rate hikes have hit borrowing affordability and house prices, mortgage sellers have started to offer more competitive rates to respond to dwindling demand as the central bank gets closer to the end of its tightening cycle. Despite this, it is likely that house prices will cool further this year as the culmination of high inflation, rising interest rates, the cost-of-living crisis and elevated borrowing costs take their toll.
Meanwhile a separate report from Hamptons showed that residential rents in the UK are rising at their fastest pace on record. Average monthly rental costs surpass £1,300 for the first time, jumping 12% year-on-year in August. Clearly the knock-on effect of surging mortgage costs has prompted many would-be buyers to turn towards the lettings market instead as they wait for mortgage rates to come back down again.”
Updated
Goldman Sachs has lowered its forecast for peak UK interest to 5.5%, meaning one more increase – this Thursday.
Goldman economists now believe that Bank of England will then leave interest rates on hold at the next meeting in November, rather than hiking again to 5.75%.
They say:
“Looking ahead to the November meeting, we see a greater chance that sequential wage and price pressures will have cooled sufficiently to allow the MPC to go on hold, given their preference for a flatter peak.”
Full story: More house sellers cutting asking prices as market cools
UK house sellers are cutting their asking prices at the fastest rate in more than a decade, after high interest rates dampened demand for property this summer.
The proportion of homes on the market which have had at least one price reduction is at its highest level since January 2011, the property website Rightmove has reported.
According to Rightmove, more than 36% of properties on the market have had their asking price reduced at least once, compared with the pre-pandemic average of 31.2%, as sellers tried to attract offers.
This led to average price reductions of 6.2%, which was also the highest since January 2011, knocking more than £22,000 off average asking prices.
These cuts suggest that some sellers were too optimistic with their initial asking prices and have had to make some bigger than usual adjustments, with the lenders Nationwide and Halifax both reporting that selling prices are falling at the fastest rate since 2009.
“Many a buyer and seller took a break over the summer to get some perspective on the property market,” said the property agent Emma Fildes, founder of Brick Weaver.
More here:
Rents soar as high interest rates shut out buyers
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Residential rents across Britain are rising at their fastest pace on record as high interest rates shut buyers out of the property market, prompting sellers to slash their asking prices.
New data from estate and letting agent Hamptons this morning show that the average rent on a newly-let property has jumped by 12% in the year to August, the fastest since its index began in 2014.
This pushed the average monthly rent on a newly-let home in August to £1,304, less than a year after it hit £1,200 for the first time.
Aneisha Beveridge, head of research at Hamptons, said:
“Each passing month has ushered in a new rental market record. Rents have risen more in the last 12 months than they did between 2015 and 2019.
“While the current pace of rental growth is unsustainable long term, many mortgaged landlords are being squeezed just as tightly as tenants.”
Landlords, who have been hit by the increase in UK interest rate over the last 20 months, have responded by pushing up rents paid by tenants, where they can.
Beveridge adds:
“Higher rents are only going some way towards helping mortgaged landlords balance their books, rather than boosting their profit. This is one of the reasons we haven’t seen large numbers of new landlords come into the market.”
The jump in borrowing costs has also made it harder for tenants to buy their own home instead of renting, with average fixed-rate mortgages over 6%.
The resulting slowdown is prompting many sellers to slash their asking prices. New data from Rightmove morning shows that the proportion of homes on the market reduced in price has hit the highest since January 2011 (more on that shortly).
But overall, asking prices for new homes rose 0.4% in the last month, though were 0.4% lower than a year ago.
The Rightmove index is just new listings.
— Neal Hudson (@resi_analyst) September 18, 2023
They also report "36.3% of properties currently for sale have had a price reduction, with an average reduction equating to £22,700 nationally (6.2%)" https://t.co/wQjlGCRpUp
This comes at the start of a busy week for central bankers.
On Thursday, the Bank of England is expected to raise UK interest rates for the 15th time in a row, from 5.25% to 5.5%, as it continues to battle inflation.
But that could be the final hike in the current cycle, with the BoE’s Monetary Policy Committee hopeful that inflation will fall markedly by the end of this year.
Philip Shaw of Investec says:
The committee’s deliberations are set against a background where inflation has trended lower and the economy appears to be weakening, with surveys hinting the service sector may be following manufacturing into a downturn.
The agenda
10am BST: Germany’s Bundesbank to release monthly report
10am BST: Liz Truss speaks about her plans for economic growth at Institute for Government
3pm BST: NAHB/Wells Fargo US housing market index
Updated