Oil price up after Saudi Arabia cuts output; UK mortgage rates rising; car sales grow – business live

UK service sector firms lifted their prices again last month, as they tried to pass on higher wage costs, according to the latest survey of purchasing managers.

Data provider S&P Global reports that service sector cost inflation hit a three-month high in May, due to higher payroll costs.

This prompted a jump in output prices, as companies tried to recoup these higher wages – although some firms found their clients were reluctant to accept higher prices.

Tim Moore, economics director at S&P Global Market Intelligence, says there were “intense wage pressures” in the service economy last month, even though employment growth moderated.

Moore added:

Higher salary payments more than offset lower fuel costs, which meant that overall input price inflation edged up to its strongest for three months in May.

Average prices charged by service sector companies nonetheless increased at the second-weakest pace since August 2021 amid some reports of greater price resistance among clients.”

Purchasing managers also reported robust rises in output and incoming new work in May, which helped the sector keep growing.

The S&P Global / CIPS UK services PMI dipped to 55.2 in May, down from April’s 55.9, but still showing solid growth (any reading over 50 shows an expansion).

UK car sales have continued to recover from their slump in the pandemic, but remain sharply below pre-Covid levels, new industry data shows.

New car registrations rose by 16.7% in May, the Society of Motor Manufacturers and Traders has reported, to 145,204.

Thaat is the 10th consecutive month of growth, as the market is boosted by improved supplies of new cars.

It’s the longest uninterrupted period of growth since 2015, according to the SMMT. But, registrations remain 21% below May 2019 when 183,724 new cars were registered.

Mike Hawes, SMMT chief executive, said,

After the difficult, Covid-constrained supply issues of the last few years, it’s good to see the new car market maintain its upward trend and the fact that growth is, increasingly, green growth is hugely encouraging.

Transforming the market nationwide, however, and at an even greater pace means we must increase demand and help any reticent driver overcome any concerns about electric vehicles. This will require every stakeholder – industry, government, chargepoint operators and energy companies – to play their part, accelerating investment to drive decarbonisation.”

Large fleet registrations continued to drive the growth, up by 36.9% to 76,207 units, which the SMMT attributes to greater availability following challenging supply issues in 2022.

Registrations to private buyers fell slightly by -0.5% to 65,932 cars, while smaller business fleets registered 3,065 units, a year on year rise of 22.5%.

Petrol-powered cars made up 57.1% of all registrations, despite efforts to move motorists onto electric vehicles.

But the number of new battery electric cars jumped by over 58% year-on-year, to 24,513 from 15,448 in May 2022.

Rising mortgage rates are forcing more borrowers to take out lengthy loans.

A record share of first-time buyers are taking out mortgages with terms of 35 years or more, the Telegraph reported yesterday, rather than the ‘typical’ 25-year term.

They cited new UK Finance data showing that almost a fifth of loans taken out by first-time buyers in March were for terms of 35 years or longer.

Such longer-term loans look more attractive as interest rates rise, as the monthly payment on the debt will be lower. However, it could be creating a ‘debt timebomb’ in future years, as lender could still be stuck with a mortgage late in their careers, or even into retirement.

UK Finance, the trade body, is expected to warn this week that longer-term borrowing could be ‘reaching its limit. Its analysis is expected to say:

“Whilst this has been a long-term trend seen since 2010, the growth in borrowing over a longer term accelerated rapidly through 2022. As 2023 began we have seen the growth in longer term borrowing level off.

Although tentative at this stage, this may signal that the extent to which this option can be used to stretch affordability and meet underwriting requirements is reaching its limit.”

The turbulence in the UK’s mortgage market is escalating as lenders lift the rates on their loans, putting a squeeze on households looking to remortgage this year.

The jump in wholesale borrowing costs, as the City anticipates the Bank of England will continue to lift Base Rate this year, is causing ructions across the market.

On Friday, TSB withdrew its 10-year fixed mortgages with just a couple of hours notice, and also lifted its two and five-year fixed rates by as much as 0.8 per cent, Mortgage Solutions reports.

According to The Times today, the country’s third- largest lender, Santander, made changes over the weekend, while Coventry Building Society is expected to increase all its two, three and five-year deals tomorrow.

This follows a rush to pull offers last week, when UK banks and building societies removed almost 800 residential and buy-to-let mortgage deals amid growing concerns over future interest rate rises.

The disruption was triggered by the smaller-than-expected fall in UK inflation in April, which could prompt the BoE to raise interest rates from their current 4.5% to 5.25%, or more, by the end of this year.

The Times reports today:

The number of mortgage deals has hit its lowest level since March, according to the financial data analyst Moneyfacts. The average two-year fixed-rate mortgage has risen from 5.34 per cent to 5.64 per cent over the same period, adding £444 a year to repayments on a £200,000 mortgage in two weeks.

Other lenders including Barclays, HSBC, NatWest, Virgin Money and the Nationwide, Skipton and Yorkshire building societies have all increased fixed-rate deals over the past week by up to 0.85 percentage points.

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

The oil price is rising this morning after Saudi Arabia decided to cut its crude output by one milllion barrels per day.

Saudi Arabia will make an additional voluntary cut of 1 million barrels of oil a day as part of a deal struck by the Opec+ group of producers, after hours of tense haggling in Vienna.

After a weekend of talks, Saudi Arabia announced its oil output will drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the biggest reduction in years.

The reduction is part of an Opec+ agreement which will also see the United Arab Emirates increase its output target by 200,000 barrels a day from January.

But several African members will have their quotas reduced from next year, bringing them closer to their actual production capacities.

“This is a Saudi lollipop,” Saudi energy minister Prince Abdulaziz told a news conference last night, explaining:

“We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do… This market needs stabilisation”.

News of the Saudi output cut has lifted the oil price. Brent crude, the international benchmark, has gained over 1% to touch a one-month high of £$78.73 per barrel, before dipping back.

Opec+ also agreed to extend the voluntary output cuts announced two months ago into 2024, as the group face the threat of flagging prices and a looming supply glut.

The group said it was acting to “achieve and sustain a stable oil market, and to provide long-term guidance for the market”.

Despite today’s rally, oil is still lower than in January, having started the year around $85 per barrel.

Consumers and businesses have been hoping that cheaper energy prices would ease the cost of living squeeze; some will be hoping that today’s jump is short-lived.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

The week kicked off with a jump in oil prices, after Saudi announced that it will cut its production by another 1mbpd starting from July, pulling its production to the lowest levels since years.

The UAE will be given higher quotas, as African countries – which repeatedly fell below their production quotas– will see their upper production limit lessened.

Saudi will continue doing the heavy lifting of production cuts, hoping that its efforts will reverse the falling price trend in oil markets and boost prices, but the gifts to some OPEC members in expense of the others hint that we could see further cracks within the cartel in the next few months, and that’s not a winning setup for OPEC, and oil bulls.

Also coming up today

UK car sales rose last month, according to industry data due out this morning, but are still below their pre-pandemic levels

The latest surveys of purchasing managers across the UK, eurozone and the US are due out today. They could show that private sector growth slowed in Europe last month, but picked up in the US.

The agenda

• 7am BST: German trade balance for April

• 9am BST: UK car sales figures for May

• 9am BST: Eurozone service sector PMI report for May

• 9.30am BST: UK service sector PMI report for May

• 2pm BST: ECB president Christine Lagarde testifies to European Parliament’s economic and monetary affairs committee

• 3pm BST: US service sector PMI report for May

• 3pm BST: US factory orders for April