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

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.

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.

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 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.

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

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.

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.

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.

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 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

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%).

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….

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.

The agenda

• 7am BST: UK quarterly national accounts for January-March

• 7am BST: Nationwide house price index for June

• 7.45am BST: French inflation report for June

• 8.55am BST: German unemployment report for June

• 10am BST: Eurozone inflation report for June

• 1.30pm BST: US PCE index of inflation for May

• 3pm BST: University of Michigan survey of US consumer confidence