Eurozone inflation jumps to 2.6%; UK house prices rebound modestly – business live

Vodafone has completed the disposal of its Spanish operations to Zegona Communications for €4.1bn in cash and €900m in the form of redeemable preference shares.

The telecoms giant has been undergoing a transformation programme under new chief executive Margherita Della Valle, who has sought to simplify the group and taken action in three underperforming markets where Vodafone’s returns were below the cost of capital.

The disposal of the Spanish division, which was announced last October but needed to go through regulatory approvals, is part of Vodafone’s turnaround which also includes a sale of its operations in Italy and a proposed merger with CK Hutchison’s Three in the UK which is currently being considered by the Competition and Markets Authority(CMA), the anti-trust regulator.

With the European Central Bank on the eve of deciding on a historic interest rate cut, today’s rise in eurozone inflation adds to doubts about the future path of inflation.

So says Bert Colijn, senior economist for the eurozone at ING, who explains that May’s inflation report shows that “the final throws” of getting inflation back to target are not necessarily easy.

This means that next week’s ECB meeting may not mark the start of a traditional cutting cycle, even if borrowing costs are cut, as expected.

Colijn writes:

While many forward-looking indicators remain benign, a hot labour market, continued supply chain disturbances, and a recovery of purchasing power will make for an interesting debate at the ECB governing council as they decide on the path of monetary policy from here on in.

Core inflation seems set to decelerate again, but the question is at what pace? Services inflation remains elevated for now but forward-looking indicators do gradually move in the right direction. Still, we expect services inflation to trend around 3.5% towards the end of the year, well above target. If goods demand returns on the back of higher real wage growth, goods inflation could accelerate somewhat again towards the end of the year as supply chain problems still modestly curb supply.

Core inflation across the eurozone has also risen, which may cause some frowns at the European Central Bank.

Inflation, stripping out energy, food, alcohol & tobacco, is estimated to have risen to 2.9% this month, reversing the drop to 2.7% seen in April.

Newsflash: inflation across the eurozone has picked up this month, showing that the squeeze on households is not over.

The annual inflation rate across the eurozone is expected to be 2.6% in May, statistics body Eurostat reports, up from 2.4% in April, driven by rising prices in the services sector.

Economists had expected a smaller rise in inflation, to 2.5%.

That takes CPI inflation away from the European Central Bank’s 2% target, just as investors anticipate an interest rate cut by the ECB next week.

According to Eurostat, services inflation rose to 4.1% in May, up from 3.7% in April, while food, alcohol & tobacco inflation slowed to 2.6% (from 2.8% in April).

Non-energy industrial goods prises rose by 0.8% per year (down from 0.9%), and there was a small increase in energy prices (up 0.3% year-on-year, compared with -0.6% in April).

This follows a pick-up in inflation in Germany yesterday (to 2.8%), and in France this morning (to 2.7%), both on an EU-harmonised basis.

Just in: UK lenders approved fewer new mortgages than expected last month, but there’s been a pick-up in the amount borrowed to fund a house move.

New Bank of England data shows there were 61,100 mortgage approvals for house purchases in April, down on March’s 61,300, and below forecasts for a rise to 61,500.

However, mortgage borrowing rose last month; people borrowed £2.4bn of mortgage debt in April, compared to £0.5bn in March.

(mortgage approvals are an indicator of future borrowing).

The remortgaging market also cooled: Net approvals for remortgaging (with a different lender) decreased to 29,900, from 33,500, which suggests higher mortgage rates deterred people from shifting to new deals.

The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages increased slightly by 1 basis point, to 4.74% in April. The rate on the outstanding stock of mortgages increased by 7 basis points, to 3.57% in April.

It’s all change at betting group Flutter this morning.

Flutter, which owns FanDuel, Sky Betting & Gaming, Sportsbet, PokerStars, Paddy Power, and Betfair, has completed the migration of its primary stock market listing to New York, from London.

Peter Jackson, CEO of Flutter Entertainment, says:

“Today marks an important milestone in the evolution of Flutter with the commencement of our primary listing on the New York Stock Exchange.

This closely follows the recent move of our operational headquarters to New York, with both reflecting the increasing importance of the US sports betting and iGaming market to our business. We have a fantastic position in the US, with FanDuel the clear number one operator, and we look forward to this next step on our journey.”

But CFO Paul Edgecliffe-Johnson won’t be sharing this journey. Flutter’s board have decided it’s “in the Company’s best interests” him to step down from his role as Group CFO and Executive Director.

Edgecliffe-Johnson was concerned about his ability to spend the “extensive executive management time” in the United States that is now needed, due to family commitments in the UK. So he’s being replaced by Rob Coldrake, currently CFO of Flutter International, with immediate effect.

Karen Noye, mortgage expert at wealth manager Quilter, says the UK housing market is showing “considerable resilience” in the face of tough economic conditions, and the affordability squeeze.

This is likely in part due to the annual spring bounce as more buyers come to market making it more competitive. However, on an annual basis, prices have increased by 1.3%. The slight uptick suggests some stability, albeit under challenging conditions.

“Nationwide’s data reflects a modestly positive trend, but the housing market remains very unpredictable and the growth in house prices is modest. Monthly property transactions have been lower than expected, indicating a cautious market but this is no surprise given the stress the nation’s finances have been under.

“Affordability remains a significant challenge, particularly for first-time buyers who face rising mortgage rates and the ongoing pressures of living costs.

Tom Bill, head of UK residential research at Knight Frank, says house prices do not feel poised to rally:

High supply is keeping a lid on prices and stubborn services inflation means swap rates are rising and mortgages starting with a ‘3’ feel some way off.

Asking prices still need to reflect the fact that buyers currently have tighter budgets and more choice. The general election is unlikely to impact mainstream property markets and if buyers want to know what prices will do next, the next inflation reading rather than the political manifestoes is the best place to start.”

Iain McKenzie, CEO of The Guild of Property Professionals, says house prices across the country are in “a state of flux”:

“This is undoubtedly still a good time to market your property, but it is always worth speaking to an estate agent with a good understanding of prices in your area. While house price figures are useful for giving a top-level overview, they do not give you the granular detail that you might need to get the most out of your sale.

“Inflation came in higher than expected this month, which makes it increasingly unlikely that the Bank of England will lower interest rates in June.

“For the time being, people on tracker mortgages will face higher repayments and crucially for buyers it also means that some of the most attractive mortgage offers will be slower to return to the market.

Nationwide have also dug into their data, and found that past general elections do not appear to have generated volatility in house prices or resulted in a significant change in house price trends.

Their chief economist Robert Gardner says:

“On the whole, prevailing trends have been maintained just before, during and after UK general elections. Broader economic trends appear to dominate any immediate election-related impacts.

It’s a busy morning for Nationwide Building Society.

As well as their latest house price data, we’ve also just learned that the UK’s competition authorities have launched a merger inquiry into its £2.9bn takeover of rival Virgin Money.

The Competition and Markets Authority (CMA) says it is considering whether the deal – the biggest since the financial crisis – would lead to a substantial lessening of competition within the UK banking sector.

The CMA is seeking views from interested parties, by 14 June (details here).

Last week, Virgin Money shareholders have voted in favour of Nationwide’s offer, despite one investor claiming the takeover was “likely to sell shareholders very short”.

As well as the shareholder vote, the deal still needs formal approval from City regulators the Financial Conduct Authority and Prudential Regulation Authority, as well as signoff from the CMA.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Whether people feel wealthier can be a key factor in where they place their tick at the ballot box.

And those lucky enough to own a house became slightly wealthier this month, new data shows, while a separate report shows living standards have languished for more than a decade.

Lender Nationwide has just reported that UK house prices rose by 0.4% month on month in May, ending a two-month run of falling prices.

This has lifted the annual rate of house price inflation up to 1.3%, from 0.6% in April, with the average house price now £246,249.

Prices rose even though some lenders raised mortgages rates this spring – although costs are below the spike in the months after the 2022 mini-budget fiasco which did such damage to the Conservative Party’s popularity.

Nationwide reports that the market is showing some resilience. Their chief economist, Robert Gardner, says:

“The market appears to be showing signs of resilience in the face of ongoing affordability pressures following the rise in longer term interest rates in recent months. Consumer confidence has improved noticeably over the last few months (see chart below), supported by solid wage gains and lower inflation.

The general election campaign is unlikely to disrupt the housing market much; Rightmove reported this week that 95% of people planning to move home say the election will not affect their plans.

The wider economic picture, though, is that the UK has been suffering weak income growth since the Great Recession.

The Institute for Fiscal Studies reports this morning that median incomes grew by just 6% between 2009–10 and 2022–23; before the 2008 crisis, economists would have expected growth of 30% over that 13-year period.

The IFS warns that there’s no “silver bullet”, but reforms to taxes, planning, education and more can make a material difference to the UK’s long-term prospects.

Mubin Haq, chief executive of abrdn Financial Fairness Trust, says:

‘Unfortunately, living standards have languished for more than a decade.

On a range of measures UK performance has been weak, especially in comparison to other wealthy countries. The danger is that stagnation becomes the new normal. This is in no one’s interests and stunts too many futures and too many lives.

Key to any future government will be a renewed drive to tackling hardship and improving living standards.’

Also coming up today

New Bank of England data will show how many mortgages were approved last month, another gauge of the housing market’s health.

Global investors are bracing for the latest US PCE inflation data, which measures price changes across a wide range of consumer expenses. A strong PCE report could throw more cold water on hopes of early US interest rate cuts, while a weak reading could put them back into play….

The agenda

• 7am BST: Nationwide house price index for May

• 7am BST: German retail sales

• 7.45am BST: French inflation report

• 9.30am BST: UK mortgage approvals and consumer credit stats

• 10am BST: Eurozone inflation report

• 1.30pm BST: Canadian Q1 GDP report

• 1.30pm BST: US PCE inflation index