UK house prices suffer first annual fall since 2012

November 15, 2023

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UK house prices suffer first annual fall since 2012

UK house prices suffered their first annual decline in more than a decade in September as rental costs rose at a record pace, according to official data. 

The average price for a property decreased by 0.1% in September compared with the same month last year, down from a 0.8% expansion in August, figures from the Office for National Statistics showed on Wednesday. 

This marked the first year-on-year drop since April 2012. The fall reflects the effect of high mortgage rates on the market as the Bank of England keeps interest rates high in an attempt to weaken demand and lower inflation to its 2% target.

Private rental prices rose by 6.1% year-on-year in October, up from 5.7% in September, the ONS reported, marking the fastest rate since the data series began in January 2016.

High borrowing costs have weakened demand for new homes as more and more households struggle to afford mortgage payments. 

At the same time, the demand for rental properties has risen,  pushing up rents further as a result. Rising rental costs now also reflect landlords passing on higher borrowing costs to tenants and a shortage of rental stock on the market.

House prices decreased by an annual rate of 2.7% in Wales and 0.5% in England, but rose in Scotland in September, according to the ONS. 

London reported a 1.1% fall year-on-year driven by contractions in cash and detached house purchases. London registered the fastest rental price growth in England at 6.8%, setting a new record since the data series began in January 2006.

UK inflation slows to 4.6% but households remain under pressure

UK inflation fell sharply in October to its lowest rate in two years, but households still remain under pressure with consistently high prices.

Inflation, which measures the rate at which consumer prices rise, dropped to 4.6% in the year to October, down from 6.7% the month before.

The government says its promise to cut inflation in half by the end of the year has been met early. But there is a limit to how much credit ministers can take for the fall as energy prices continue to settle.

Economists have said the main reason inflation has fallen from its peak of 11.1% in October 2022 is due to a fall this month in the energy price cap, which in turn limits what suppliers can charge consumers per unit of energy.

They also take into account the Bank of England's decision to raise interest rates, in a bid to cool demand in the UK economy and slow price rises.

Rates are currently at 5.25%, a 15-year high, which has pushed up mortgage costs but also led to higher savings rates.

Although inflation has eased sharply since the start of the year, it is still well over twice the Bank of England’s 2% target. The price level measured by the consumer prices index is still up by one-fifth since the eve of the inflationary upsurge in early 2021, highlighting a fierce squeeze on household incomes.

Data from the Office for National Statistics showed a steeper than expected drop in the headline inflation rate to 4.6% in October, driven in part by a reduction in energy regulator Ofgem’s price cap. 

The core CPI rate, which excludes energy and food, rose 5.7% in the 12 months to October, down from 6.1% in September. 

Crucially, the rate of services inflation, which is closely watched by many to gauge pressure in the system, slowed more than expected from 6.9% to 6.6%.

Consumer prices are still 21% higher than in January 2021, before factors including supply chain disruption and Russia’s invasion of Ukraine caused them to soar. 

This means people can buy less with the same money, while interest rates of 5.25% has heaped pressure on already-squeezed household incomes.

Despite robust wage growth, the real value of workers’ pay has fallen for most of the past two years.

US inflation eases as lower gas prices continue to offset rent rise

A drop in petrol prices last month helped to drive US inflation to the lowest rate since July.

Prices increased at a rate of 3.2% over the 12 months to October, the Labor Department stated in a recent report. This value was down from 3.7% a month earlier. 

Housing costs have however continued to climb, but overall price pressures were milder than analysts had expected, suggesting the country's fight against inflation may be nearing its end point.

From September to October, the price index remained unchanged. Stripping out food and energy prices, which tend to fluctuate and mask wider trends, prices rose by 0.2%, easing from a month earlier, providing positive news for many economists.

The Federal Reserve has recently raised interest rates sharply since last year, aiming to stabilise prices that were soaring at the fastest pace in decades.

Analysts said the relatively mild price increases make the US central bank less likely to raise borrowing costs again in the future months.

Prices for petrol have fallen more than 5% since last year, and recently tumbled from September to October, according to the latest from the Labor Department. The price of new and used cars and trucks also dropped in tandem.

Unlike in the UK, housing costs are heavily weighted in calculations of US inflation. The price index measures a range of items, including rents, hotel rates and household insurance.

Housing costs accounted for more than 70% of inflation last month, according to the Labor Department.

Rents rose 0.5% from September to October, the same pace as in recent months.

Investors raise hopes of economic rebound in Germany

Confidence now grows that the downturn in the largest EU economy has fallen after the latest economic survey from the ZEW.

German investors have recently become more optimistic about the next six months of the year, now encouraged by a growing belief that an economic turnaround is imminent as inflation falls and interest rates stabilise. 

The brightening of investor hopes is a stark contrast to the recent data pointing to a contraction in German output this year, but economists said the change in outlook reflected a sense that the most challenging conditions were set to ease across the nation.

The ZEW’s monthly survey of investors in Europe’s largest economy found their outlook had improved dramatically since March. Its index of German economic expectations jumped to 9.8 in November, up from minus 1.1 in October. This value was higher than the reading of 5 forecast by economists in a Reuters poll.

However, its index of observations about current conditions in Germany remained deep in negative territory at minus 79.8, only a slight improvement from minus 79.9 last month. 

Germany has been hit by higher energy prices since Russia’s full-scale invasion of Ukraine last year and a downturn in global trade partly due to China’s weaker growth. 

Gross domestic product shrank 0.1% in the three months to September from the previous quarter, reflecting falls in industrial production, exports and retail sales. Most economists expect a further contraction in the fourth quarter and only a tepid rebound next year.

ZEW also found investors were becoming more upbeat about the outlook for the wider eurozone, despite their assessment of current conditions in the region decreasing from an already low level.  

The share of investors expecting eurozone inflation value to fall in the next six months rose significantly, on the other hand, the number expecting short-term interest rates to be cut in that period increased to just over a fifth.

The European Central Bank, which last month held its benchmark deposit rate at 4 per cent after 10 consecutive increases, has forecast that eurozone GDP will recover next year as higher wages and lower inflation lift consumer spending power.

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