UK house prices increase almost 1% in October; Next lifts profit forecasts again

Introduction: House prices increase in October

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

The health of the UK housing market will be on the mind of Bank of England policymakers this week, as they meet to set interest rates at noon tomorrow.

And the latest news is that house prices increased in October, but remained lower than a year ago, as a shortage of properties lifted prices after their recent falls.

Lender Nationwide has reported this morning that UK house prices rose by 0.9% month on month in October, compared to forecasts of a 0.4% fall.

The average price of a property sold last month rose to £259,423, up from £257,808, according to Nationwide’s data which is based on transactions involving a mortgage.

That still leaves house prices down 3.3% compared to October 2022, though, which is a smaller annual fall than the 5.3% recorded in September.

Robert Gardner, Nationwide’s chief economist, warns that housing market activity has remained extremely weak.

Gardner says:

This is not surprising as affordability remains stretched. Market interest rates, which underpin mortgage pricing, have moderated somewhat but they are still well above the lows prevailing in 2021.

“The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained. There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.

“Activity and house prices are likely to remain subdued in the coming quarters. Despite signs that cost-of-living pressures are easing, with the rate of inflation now running below the rate of average earnings growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries.

Figures on Monday showed that UK mortgage approvals slumped in September as stress build up in the property market, with the fewest home loans approved since January.

Also coming up today

The US central bank, the Federal Reserve, will set interest rates later today (6pm UK time). The Fed is expected to leave interest rates on hold, while it assesses whether its existing monetary tightening is enough to bring down inflation.

Executives from some of the world’s bigest tech firms are joining world leaders and artificial intelligence experts at Bletchley Park, the birthplace of computing, for Rishi Sunak’s AI summit.

The event will focus on frontier AI systems, the cutting-edge models that can perform a wide variety of tasks matching or exceeding the performances of the most advanced AI available today.

Flexible workspace provider WeWork is expected to file for bankruptcy as early as next week, as the SoftBank Group-backed company struggles with a massive debt pile and hefty losses.

We also get a healthcheck on UK factories’ performance last month, with the latest survey of manufacturing purchasing managers.

Overnight, PMIs from China, Japan and South Korea have shown activity shrinking while Vietnam and Malaysia also struggled last month, as the slowdown in China’s economy rippled.

The agenda

9.30am GMT: UK manufacturing PMI report for October
11am GMT: US weekly mortgage approval levels
12.15pm GMT: ADP survey of US private sector payrolls
2pm GMT: JOLTS survey of US job vacancies
6pm GMT: Federal Reserve sets interest rates
6.30pm BST: Federal Reserve press conference

Key events

UK mortgage rates have dipped again today, as lenders continue to cut borrowing costs amid hopes that interest rates have peaked.

Data provider Moneyfacts reports that:

The average 2-year fixed residential mortgage rate today is 6.29%. This is down from an average rate of 6.31% on the previous working day.
The average 5-year fixed residential mortgage rate today is 5.86%. This is down from an average rate of 5.87% on the previous working day.

Full story: UK house prices rose unexpectedly in October

Back in the UK property sector, David Hollingworth, associate director at L&C Mortgages says the lack of forced selling is encouraging.

Prices are likely to feel more downward pressure in the near term, though, Hollingworth predicts, adding:

“The hope will be that more activity will gradually return to the market next year, as the more stable mortgage market and the prospect of lower inflation helps to further the current falls in mortgage rates.”

Shares in fashion retailer Asos have dropped almost 9% this morning, after it warned that sales will drop again in 2024.

Asos has been hit by a shift away from buying online since the Covid pandemic restrictions ended, as well as heavy competition from companies such as the fast fashion online specialist Shein and retailers with a combination of stores and online retail, such as H&M and Zara.

And this morning it reported that sales fell 10% to £3.5bn in the year to 3 September as profits slumped to £296.7m from £32m a year before.

After a choppy October, the London stock market has begun November with a slight rise.

The FTSE 100 is up 10 points, or 0.15%, at 7332 points.

Smurfit Kappa, the packaging company, are leading the risers, up 3% after reporting that the decline in demand for cardboard boxes is slowing.

They’re followed by Next (+2.2%) and GSK (+1.9%) after both companies raised their earnings guidance this morning.

Investors will hope that November proves more profitable than October, which was the FTSE 100’s worst month since May.

Henry Allen and Jim Reid of Deutsche Bank explain:

October was another weak month for markets, with several factors driving losses across different asset classes.

In particular, the attack by Hamas on Israel on October 7 led to significant concerns about geopolitical risk, and investors remained cautious given concerns about a wider escalation. Alongside that, October saw another strong round of US economic data, which helped drive a fresh rise in long-dated borrowing costs and added to fears about the impact of higher rates on the broader economy.

That meant the S&P 500 lost ground for a 3rd consecutive month for the first time since the pandemic turmoil of March 2020, whilst US Treasuries lost ground for a 6th consecutive month.

The surprise rise in UK house prices in October indicates that the market is unlikely to crash, argues Martin Beck, chief economic advisor to the EY ITEM Club.

Beck points out that house price affordability has improved, with earnings rising faster than inflation, saying:

House prices unexpectedly rose in October on the Nationwide measure and by the largest amount since March 2022. Given the pressures facing the housing market, not least from higher mortgage rates, October’s increase may prove to be short-lived. But it reinforces the EY ITEM Club’s view that house prices are unlikely to see an outsized correction.

That the Bank of England is likely to hold Bank Rate unchanged again when it meets later this week should cement the recent fall in market interest expectations and quoted mortgage rates. With pay growth still strong, the ratio of house prices to earnings has fallen, improving affordability on this measure. Meanwhile, healthy household balance sheets and a still-tight jobs market should keep mortgage defaults and forced sales down.

However, the recent fall in quoted rates still leaves borrowing costs close to their highest since 2008. Confidence among households is weak and unemployment has started to pick up. The EY ITEM Club continues to expect a peak-to-trough fall in house prices of around 10%.

GSK raises annual forecasts after strong launch of RSV vaccine

We also have a profit forecast upgrade from UK pharmaceuticals firm GSK.

GSK has lifted its forecast for earnings growth this year, citing the strong launch of its respiratory syncytial virus (RSV) vaccine and steady demand for its shingles shot.

GSK now expects a rise of 17% to 20% in annual adjusted earnings per share, excluding the effect of currency swings, up from 14% to 17% growth previously forecast.

Meanwhile, sales are seen to rise by 12% to 13% in 2023 compared with earlier expectations of 8% to 10%.

Emma Walmsley, chief executive officer of GSK, says:

“GSK is delivering strong and sustained performance momentum, with another quarter of double-digit sales and earnings growth. Competitive performance was broadly based but benefitted particularly from the outstanding US launch of Arexvy, the world’s first RSV vaccine.

Our excellent execution supports an upgrade to our full-year 2023 guidance and we have clear momentum as we look ahead to deliver our 2026 outlooks. GSK’s longer-term outlook also continues to strengthen, with progress in our vaccines pipeline, the development of our ultra long-acting HIV portfolio and significant new prospects in respiratory.”

2023’s house price correction ‘may finally be easing’

October’s surprise rise in UK house prices may show that this year’s correction in prices is finally easing, suggests Jonathan Hopper, CEO of Garrington Property Finders.

“Springtime this is not, but there are tentative signs of thawing in the property market.

“Official data shows the number of homes sold in September was down 17% on the same time last year, and buyers remain deeply price sensitive, but Nationwide’s data suggests 2023’s price correction may finally be easing.

“With the Bank of England expected to hold interest rates steady again tomorrow and average mortgage rates creeping down, the combination of better value homes – and the borrowing needed to buy them – could give the market a welcome lift as the nights draw in.

“While thus far it has been cash buyers who’ve capitalised most on falling house prices, greater clarity on interest rates should bring more mortgage-reliant buyers back into play.

Hopper adds that price cutting “remains widespread”, especially for new-build homes in places where there is abundant supply.

“There’s an increasing realisation that while a mortgage rate isn’t for life, the purchase price you pay is for the lifetime that you own a property. With prices down across all regions, more buyers are starting to look beyond mortgage rates at the money they can save on the price.

Sarah Butler

More retail news: Asos has warned sales will continue to fall in the year ahead – by much as 15% – after delayed results revealed it slumped to a near £300m annual loss.

Analysts have expressed fears that the online fashion site will need to raise new cash – potentially through the sales of its Topshop brand – with net debt including leases now at £648.5m, up from £533m a year before.

José Antonio Ramos Calamonte, Asos’s chief executive, said it had made “good progress” in “a very challenging environment” and would continue to bring in new more fashionable stock and invest in its brand.

The company plans to spend £30m more on marketing and said it was going “back to fashion” with its products “geared around fashion and excitement.”

House prices rise: snap reaction

Despite October’s pick-up, UK house prices may drop again as winter sets in, warns property agent Emma Fildes of Brickweaver.

Autumn moves show a mild uptake in houses prices, which edged up 0.9% in October 23 but remain -3.3% down on last year. As winter sets in, this reprieve may prove short lived, as many wait for the right climate before “spring”ing back into action @AskNationwide pic.twitter.com/mVia7iT4Mv

— Emma Fildes (@emmafildes) November 1, 2023

Guy Gittins, CEO of Foxtons, argues that the UK’s central bank could give the market more confidence by not raising interest rates again on Thursday.

All eyes will be on the Bank of England this week and the latest decision with regard to the base rate.

A decision to hold, or even reduce, interest rates is unlikely to generate a dramatic uplift in market activity, especially with Christmas fast approaching, but it will add confidence to the market ahead of January.”

Is it possible that house prices are beginning to find a bottom?

October average: £257,808;
Monthly change: 0.9%;
Annual change: -3.3%.

According to Nationwide, the average adjusted house price grew on a monthly basis, while the annual decline moderated from -5.3% last month. pic.twitter.com/mbMDT5lDtt

— InvestingReviews® (@ReviewInvesting) November 1, 2023

Alice Haine, personal finance analyst at Bestinvest, says the 0.9% rise in house prices in October offers a glimmer of hope to homeowners that the worst of the downturn may be over, adding:

The unexpected uplift led to an improvement in the annual rate of house price growth, which dropped by -3.3% from a decline of -5.3% in September.

While this may deliver relief to homeowners, the uptick reflects the low stock of properties up for sale as high borrowing costs and uncertain conditions caused many sellers to delay putting their home up for sale.

Next raises profit outlook again

Breaking: clothing retailer Next has raised its full-year profit outlook again, despite the cost of living squeeze on consumers.

Next has increased its full year guidance for profit before tax this financial year by £10m to £885m – it’s fourth increase in the last six months, following an early upgrade in September.

The upgrade comes as Next also reports a 4.0% rise in full-price sales in the third quarter of this year.

Next says:

Our revised guidance for full year full price sales growth is now +3.1%; this assumes that full price sales for the rest of the year are up +2.0%.

Profit generated from the additional sales achieved in the third quarter has added £10m to our full year forecast for profit before tax.