UK avoids winter recession, and house prices rise in June – business live

UK economy grew 0.1% in Q1, ONS confirms

Newsflash: The UK has avoided recession over the winter, the latest national accounts confirm.

The Office for National Statistics has confirmed that the economy grew by 0.1% in the first three months of this year, and also in the final quarter of 2022.

That matches the initial estimate, and shows that the UK economy avoided contracting through the cost of living crisis last winter.

The major sectors of the economy all grew, the ONS says:

In output terms, the services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by a revised 0.4% (previously 0.7%), while the production sector grew by 0.1%, with a revised 0.6% growth in manufacturing (previously 0.5%).

Key events

Five-year fixed mortgage rates nearing 6%

Just in: UK mortgage rates are continuing to rise, as the squeeze on borrowers tightens.

The average 2-year fixed residential mortgage rate today is 6.39%, up from 6.37% on Thursday, according to financial information website Moneyfacts.

The average 5-year fixed residential mortgage rate today is 5.96%, up from 5.94% yesterday, as it approaches the 6% mark.

Rates have been climbing higher over the last two months, as the UK’s persistently stubborn inflation has raised expectations of further increases in interest rates.

Bank of England base rate is expected to hit at least 6% by the end of this year, up from 5% today.

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Lenders have added two more deals to the market today, Moneyfacts reports, lifting the total residential mortgage products available to 4,432, up from 4,430 on Thursday.

UK (and Germany) still 0.5% smaller than before Covid-19

The big picture is that the UK and Germany are jointly at the back of the pack for G7 growth since the pandemic.

Both economies were still 0.5% smaller than at the end of 2019, today’s National Accounts report shows, while America’s economy is over 5% larger.

A table showing G7 GDP growth rates — Photograph: ONS

The UK was the second-worst performing major economy in the first quarter of this year but – unlike Germany – it avoided recession.

Here’s how the G7 fared in Q1 2023:

Canada: grew by 0.8% quarter-on-quarter in January-March
France: grew by 0.2%
Germany: contracted by 0.3%, putting Europe’s largest economy into recession
Italy: grew by 0.6%
Japan: grew by 0.7%
United Kingdom: grew by 0.1%
United States: grew by 0.5% (revised data yesterday showed)

This morning’s confirmation that the economy grew by 0.1% q/q in Q1 means there won’t be a recession in the first half of this year.

But the sharp rise in interest rates is putting the economy increasingly at risk of falling into one at the end of 2023 or the start of next year, fears Thomas Pugh, economist at audit, tax and consulting firm RSM UK.

Pugh adds:

“We currently think the economy flatlined in Q2 and then will grow by around 0.2% q/q in Q3 and Q4 but further rises in interest rates could easily push that into the negative.

In any case, the big picture is that the economy could be no larger in 2024 than it was pre-pandemic.”

Barret Kupelian, senior economist at PwC, predicts that the UK economy contracted in May, due to the additional bank holiday for King Charles’ coronation.

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This chart shows how business investment jumped in the last quarter, as companies tried to take advantage of the super-deduction (which let them cut their tax bill by up to 25 pence for every £1 invested) before it expired on 31st March.

Photograph: ONS

Here are the key points from today’s UK National Accounts report:

This morning’s GDP quarterly national accounts have confirmed there was no growth in real household expenditure in Quarter 1 2023.

That follows 0.2% growth in the previous quarter, as real household incomes were squeezed by high inflation.

The ONS says:

There were increases in expenditure on recreation and culture, clothing and footwear, communications, and housing in the latest quarter (Figure 6). These were offset by falls in transport, and alcohol and tobacco.

Capital Economics: UK recession still to come this year

A UK recession is still coming this year, fears Capital Economics, despite the economy managing some modest growth last autumn and winter.

Ashley Webb, their UK economist, says:

The final Q1 2023 GDP data confirms that the economy steered clear of a recession at the start of 2023. But with around 60% of the drag from higher interest rates yet to be felt, we still think the economy will tip into one in the second half of this year involving a peak-to-trough fall of around 0.5%.

The 0.1% q/q rise in real GDP in Q1 was unchanged from the previous estimate. This follows 0.1% q/q growth in Q4 2022, leaving the economy 0.5% below its Q4 2019 pre-pandemic level (but on the more up-to-date monthly data in April it was 0.2% above its pre-pandemic level). This leaves the UK economy still lagging behind all G7 countries except Germany.

The biggest revision was to business investment growth, which was revised up from +0.7% q/q to +3.3% q/q in Q1, Webb adds:

That may have reflected the bringing forward of investment by businesses in response to the super-deduction allowance, which expired on 31^st March.

Only Northern Ireland defies fall in house prices

This chart shows that all regions of the UK, except Northern Ireland, saw annual price falls in the second quarter of this year:

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Unseasonably adjusted house prices in June remain stable at £262,239 but down 3.5% on June 22. But in the 3mths to June 23 annual price declines sweep the county to varying degrees with the exception of Northern Ireland. @AskNationwide pic.twitter.com/V2mnDkWZNA

— Emma Fildes (@emmafildes) June 30, 2023

All English regions saw a slowing in the annual rate of change compared with last quarter.

Nationwide says:

London saw a 4.3% year-on-year decline, while the surrounding Outer Metropolitan region saw a 2.9% fall.

“Across northern England overall (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 2.7% compared with Q2 2022. The North West was the weakest performing northern region, with prices down 4.1% year-on-year. Meanwhile southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 3.8% decline.

House prices falling at fastest annual rate since 2009, but ‘soft landing still possible’

On an annual basis, UK house prices are falling at the fastest pace since the aftermath of the financial crisis, today’s Nationwide house price data shows.

Despite that 3.5% year-on-year fall in prices, a relatively soft landing is still possible, chief economist Robert Gardner predicts, “providing the broader economy performs” as expected.

Gardner explains:

“Labour market conditions are expected to remain relatively robust, with the unemployment rate remaining below 5%, while income growth is projected to remain solid. With Bank Rate likely to peak in the quarters ahead, longer term interest rates should also start to fall back.

“As a result, a combination of healthy rates of income growth and modest price declines should improve affordability over time, especially if mortgage rates moderate.

Nationwide: rising borrowing costs will drag on housing market

Robert Gardner, Nationwide’s chief economist, says annual house price growth was “broadly stable” at -3.5% in June, little changed from the 3.4% decline recorded in May.

Prices were also fairly stable over the month, rising by a modest 0.1%, after taking account of seasonal effects, reversing the 0.1% decline seen in May.

Gardner adds that rising interest rates will cool the economy:

“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.

For example, for a representative first-time buyer earning the average wage and buying the typical property with a 20% deposit, mortgage payments as a share of take-home pay are now well above the long-run average, as illustrated in the chart below.

A chart of UK mortgage affordability — Photograph: Nationwide

Also, house prices remain high relative to earnings, and as a result, deposit requirements are still a significant barrier for those looking to enter the market, Gardner adds:

A 10% deposit on a typical first-time buyer home is equal to around 55% of gross annual income – this is down from the all-time highs of 59% prevailing in late 2022, but still marginally above the levels prevailing before the financial crisis struck in 2007/8.

UK house prices rose in June

UK house prices have risen, unexpectedly, in June – but are falling on an anual basis.

Nationwide reports that house price inched up by 0.1% this month, on a seasonally-adjusted basis.

The average price rose to £262,239 from £260,736. Economists predicted a fall of 0.3%.

But on an annual basis, house prices are 3.5% lower than a year ago, a small acceleration on the 3.4% fall in May (which was the fastest drop since 2009).

Nationwide reports that all regions except Northern Ireland recorded annual price falls in Q2.

East Anglia was the weakest performing region with prices down 4.7% year-on-year

The squeeze on UK households intensified at the start of this year, this morning’s national accounts show.

Real households’ disposable income (RHDI) fell by 0.8% following positive growth of 1.3% in Quarter 4 (Oct to Dec) 2022.

The ONS also reports that households experienced “simultaneous withdrawals from their deposit accounts and negative secured loans for the first time ever”.

UK economy grew 0.1% in Q1, ONS confirms

Newsflash: The UK has avoided recession over the winter, the latest national accounts confirm.

The Office for National Statistics has confirmed that the economy grew by 0.1% in the first three months of this year, and also in the final quarter of 2022.

That matches the initial estimate, and shows that the UK economy avoided contracting through the cost of living crisis last winter.

The major sectors of the economy all grew, the ONS says:

In output terms, the services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by a revised 0.4% (previously 0.7%), while the production sector grew by 0.1%, with a revised 0.6% growth in manufacturing (previously 0.5%).

We have encouraging news from the UK car sector.

UK car production rose for the fourth consecutive month in May, up 26.9% year on year, according to the latest figures published today by the Society of Motor Manufacturers and Traders (SMMT).

The SMMT reports that:

79,046 units left production lines, 16,762 more than in the same month last year, as manufacturers defied the challenging economic backdrop to fulfil customer demand for the latest British-built models, at home and overseas, although the total was still down -31.9% on May 2019.

Earlier this week, the UK car industry warned that the growth of electric car production in Britain is under threat from a Brexit “cliff edge” in January unless the EU agrees to delay new trade rules until 2027.

China’s factory and service sectors stumble amid economic malaise

China’s factory activity declined for a third straight month in June, and growth in other sectors has slowed.

The official manufacturing purchasing managers’ index (PMI), released earlier today, inched up to 49.0 from 48.8 in May. That left China’s factory PMI below the 50-point mark that separates expansion from contraction.

The non-manufacturing PMI fell to 53.2 from 54.50 in May, indicating a slowdown in service sector activity and construction.

A worrying sign for the global economy….

Introduction: UK national accounts, house price data and eurozone inflation all due

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

Two pieces of data this morning will give us a new insight into the state of the UK economy.

The UK’s GDP quarterly national accounts, for January to March 2023, are due at 7am. They will show how fast (or how slowly) the economy grew in the quarter, how various sectors of the economy performed, and how households fared.

The initial estimate was that the economy grew by 0.1% in Q1, and in the last quarter of 2022, thus avoiding a recession. That could be revised today, though.

We’ll also get a healthheck on the UK property market, from Nationwide’s monthly house price index (also expected at 7am, so we’ll be busy).

A month ago, Nationwide reported that UK house prices fell at their fastest annual pace for nearly 14 years in May, by 3.4%, and economists predict a larger fall in June.

Also coming up

Inflation will also be in focus today, with the latest cost of living data from Europe. Eurozone headline CPI inflation is forecast to have slowed to 5.6%, from 6.1%, but core inflation could nudge higher.

In the US, the Federal Reserve’s preferred measure of price-growth – core PCE -is expected to show that core elements of inflation remain stubborn. That could encourage the Fed to maintain tight monetary policy, to squeeze the US economy.

We’ll also be tracking Thames Water, which has refused to say when it will publish its annual report and accounts, which had been expected by investors next week, as concerns mount over the company’s financial viability.