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House prices gain momentum in July

by International Commercial Investment on August 1, 2018


House prices gained a bit of momentum in July after rising at their slowest annual rate in five years in June, mortgage lender Nationwide said on Wednesday.

House prices across the United Kingdom were on average 2.5pc higher than in July last year, faster than growth of 2.0pc in June and above a forecast for a 1.9pc rise in a Reuters poll of economists.

In monthly terms, prices rose by 0.6pc in July from June, faster than a forecast of 0.2pc.

Nationwide said the annual increase remained in the narrow 2-3pc range of the past 12 months and the lender still expected prices to rise by only 1pc in 2018.

Britain’s housing market has slowed since the 2016 referendum decision to take the country out of the European Union. Eight months before Brexit is due to happen, Prime Minister Theresa May has still to agree with the EU about Britain’s future trading relationship with the bloc.

Nationwide economist Robert Gardner said an expected interest rate hike by the Bank of England on Thursday was likely to have only a modest impact on the housing market because most mortgages issued in recent years were on fixed interest rates.

However, around 12pc of homeowners already spend more than 30pc of their gross income on their mortgage and “for those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households is likely to be modest”, Mr Gardner said.

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International Commercial InvestmentHouse prices gain momentum in July

U.K. Services Growth Unexpectedly Jumps as Economy Picks Up

by International Commercial Investment on July 8, 2018

Source: Bloomberg

The U.K.’s dominant services sector grew at the fastest pace in eight months in June, driving a bounce back in the nation’s economy and boosting the case for a Bank of England rate increase as soon as next month.

The unexpected gain in the gauge of activity followed reports this week showing faster growth in manufacturing and construction. IHS Markit, which publishes the surveys, said they suggest U.K. economic growth doubled to 0.4 percent in the second quarter.

That backs up the argument of BOE officials who say that the economy is rebounding after a weather-hit first quarter — a case that may be further strengthened by evidence from the survey showing that input costs also spiked in June. Markit predicts that will cause U.K. inflation, already above the BOE’s target, to climb from its current level of 2.4 percent.

The pound erased a 0.2 percent slide after the report to trade little changed at $1.3208 as of 10:25 a.m. London time.

“Stronger growth of service-sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher,” said Chris Williamson, chief business economist at Markit.

This week’s reports are the last full set of PMI readings BOE policy makers will get before they announce their next decision on Aug. 2. Officials voted 6-3 to hold rates at their June meeting, and investors are currently pricing in about a 65 percent chance of rate increase next month.

Markit said its Purchasing Managers Index for the services industry climbed to 55.1 last month, up from 54 in May and beating economists’ estimates for no change. The survey Wednesday also showed the fastest pickup in new work in 13 months, an upturn in demand for business and financial services, and evidence that the sunny weather last month boosted consumer spending.

Still, even with growth gaining momentum, there remain signs that Brexit-related uncertainty is continuing to hold back investment, Markit said. That follows a warning this week from the British Chambers of Commerce that U.K. companies are at “breaking point” over Brexit, and are delaying spending decisions as they await answers to key questions.

“It remains encouraging yet also surprising that current business activity continues to show such resilience amid relatively moribund confidence,” Williamson said. “Such a divergence between current and expected future activity stokes worries that the upturn is being fueled by short-term spending, based on hopes that uncertainty will lift, and likely masks a lack of longer-term business investment.”

More clarity on Brexit could emerge this week as Prime Minister Theresa May holds an all-day cabinet meeting at her Chequers country house on Friday. The premier is facing a fresh showdown with pro-Brexit lawmakers in her party over plans to keep the U.K. closely tied to European Union rules for trading goods after Brexit, according to people familiar with the matter.

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International Commercial InvestmentU.K. Services Growth Unexpectedly Jumps as Economy Picks Up

Property prices are still rising

by International Commercial Investment on July 2, 2018

Source: The Express

House prices jumped by 1.5 percent month-on-month in May following a 3.1 percent decline in April, according to an index. Halifax said the average UK house price is now £224,439.

Property values in May were 1.9 percent higher than a year earlier, experiencing slower growth than the 2.2% annual increase in April.

Russell Galley, managing director, Halifax, said: “The month-on-month figures are more volatile than the quarterly or annual measures.

“In the three months to May, house prices were 0.2 percent higher than the previous quarter and on an annual basis they are 1.9% higher.

“Both of these measures have fallen since reaching a recent peak, in the final months of last year.

“These latest price changes reflect a relatively subdued UK housing market.”

Howard Archer, chief economic adviser at EY ITEM Club, said: “The housing market is struggling to gain traction amid challenging conditions and we suspect that any meaningful upturn will remain elusive over the coming months.

“We expect house price gains over 2018 will be limited to a modest 2 percent. At this stage, we expect prices to rise no more than 3 percent in 2019.”

Sarah Beeny, founder of estate agent said: “A slowdown in growth levels is what the market needs to ensure it remains robust, as continuous high rises are unsustainable and make it difficult for many first-time buyers to get on the ladder.

“The whole market depends on first time buyers entering, so this more modest, sustainable level of growth is good news.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said house prices “remain supported by a healthy labour market, which is ensuring that few people are being forced to sell their homes in a weak market”.

Mr Tombs said he expects house prices to “flatline” in the second half of this year.

Mike Scott, the chief property analyst at estate agent Yopa, said: “Both supply and demand are subdued compared with last year, and we may see a lower total number of house sales in 2018 than in recent years.”

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International Commercial InvestmentProperty prices are still rising

UK economic growth revised higher in first quarter

by International Commercial Investment on June 29, 2018

Source: The Guardian

The UK economy grew at a faster rate than initially thought in the first three months of 2018, raising hopes for a pick-up in growth after the sluggish start to the year.

The Office for National Statistics unexpectedly revised higher its third and final estimate for UK growth in the first quarter to 0.2%, after two earlier estimates of 0.1%.

Government statisticians said fresh figures from the construction industry and improvements for measuring the sector had nudged up the growth rate.

The pound rallied against the dollar on foreign exchanges on Friday, as City traders bet that the revision increased the likelihood that the Bank of England would raise interest rates from as early as August.

Threadneedle Street has consistently argued in recent months that the UK economy is stronger than official figures might suggest, which could support a rate rise to 0.75% from 0.5%.

Despite the better news for the economy, as Theresa May met her European counterparts on Friday in Brussels to discuss Britain’s exit from the EU, the ONS said household consumption remained subdued and business investment fell in the first quarter. Economists said this confirmed the UK economy remained weak in the first three months of the year.

Samuel Tombs , the chief UK economist at the consultancy Pantheon Macroeconomics, said: “Growth [was] revised up, but the details are worse than before.”

Even though there was a revision for the first quarter, officials said the annual rate of expansion for the economy was unchanged at 1.2% – the weakest level recorded since the year to the second quarter of 2012.

The ONS also downgraded the rate of growth for 2017 from 1.8% to 1.7%, meaning the UK was the only country from the G7 group of wealthy nations to record a slowdown last year.

There have been increasingly strident warnings that businesses could relocate jobs and investment to the EU after Brexit, with growing uncertainty over the type of deal ministers want to secure with Brussels. The latest figures showed business investment fell by 0.4% in the first quarter.

Britain’s dominant service sector contributed the most to the economy, with growth of 0.3%, while production output – which includes manufacturing, energy and other utilities – rose by 0.4%, having been revised down from 0.6%.

The construction industry’s output fell by 0.8%, an improvement from the previous estimate for a fall of 2.7%, although the quarter remained the worst for the building trade in more than five years.

After a rise in inflation after the Brexit vote and weak wage growth, families increased their borrowing during the first quarter, as real growth in their disposable incomes fell by 0.5%.

The household savings ratio, which estimates the amount of money families have to save as a proportion of their total disposable income, fell to 4.1% from 4.5% in the fourth quarter.

Torsten Bell, the director of the Resolution Foundation thinktank, said households responded to shrinking pay packets and squeezed incomes by choosing to save less and borrow more. “This makes sense as families cope with higher than expected price rises, but it’s not a sustainable one.”

Britain’s current account deficit, measuring the difference between payments into and out of the country, narrowed by £1.8bn to stand at £17.7bn – or 3.4% of GDP – in the first quarter.

The gap, which illustrates how dependent the UK is on imports, shrank – thanks to falling imports and rising volumes of exports.

John Hawksworth, the chief economist at PwC, said: “Growth could pick up a little further in 2019 as real wages recover, but risks are weighted to the downside given uncertainty around the outcome of the Brexit negotiations and the potential threat to global growth from an escalating US-led trade war.”

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International Commercial InvestmentUK economic growth revised higher in first quarter

BOE Gets Big Signal U.K. Economy Is Starting to Bounce Back

by International Commercial Investment on June 5, 2018

Source: Bloomberg

The biggest part of the U.K. economy grew more than forecast in May, backing up the Bank of England’s view that a recent slump was temporary and keeping it on track for an interest-rate increase in the summer.

A measure of services jumped to a three-month high of 54 from 52.8, beating the reading of 53 predicted in a Bloomberg survey. Taken with manufacturing and construction, it suggests the economy is on course for growth of 0.3 to 0.4 percent this quarter, said IHS Markit, which publishes the indexes. Expansion slowed to just 0.1 percent in the first three months of the year.

The pound jumped after the report and was up 0.5 percent to $1.3379 as of 10:48 a.m. London time.

For the BOE, the latest Purchasing Managers Indexes support its view that the near-stagnation at the start of the year was largely down to bad weather. Retail sales rebounded in April and separate figures Tuesday point to another strong month in May, when Britons basked in a heat wave.

While the BOE held off raising interest rates in May as a precaution, it’s expected to act later this year. Policy maker Silvana Tenreyro said on Monday that the weakness was short-lived and the U.K. will need a gradual tightening over the next three years.

Investors are currently pricing about 44 percent chance of a U.K. rate increase in August. Tenreyro said is that while there’s little cost to waiting one quarter to more fully assess the economy, delaying too long is a risk. In her view, “flexibility is limited.”

“The Bank of England appears to have a preference to raise interest rates sooner rather than later based on a belief that wage growth will respond to a tight labor market, keeping inflation higher for longer,” said James Knightley, an economist at ING in London. “These data releases keep the prospect of an August rate hike firmly on the table.”

However, Knightley added that the BOE won’t follow quickly with additional tightening, given the ongoing risks. That was echoed in the Markit statement, which noted that Brexit is holding back investment and new orders are growing at the weakest pace since 2016. Confidence across the services sector dropped for the third time in four months.

“Disappointing inflows of new work suggest that growth could wane in coming months,” said Chris Williamson, Markit’s chief business economist. He agrees that a BOE move will probably come in August, but it isn’t set in stone.

“With forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assure,” he said.

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International Commercial InvestmentBOE Gets Big Signal U.K. Economy Is Starting to Bounce Back

Pound boosted as service sector growth picks up

by International Commercial Investment on June 5, 2018

Source: BBC News

The pound has risen after a closely watched survey suggested that growth in the UK’s key services sector was faster than expected in May, renewing talk of a possible interest rate rise.

The purchasing managers’ index (PMI) from IHS Markit/CIPS hit a three-month high of 54.0, up from 52.8 in April. A figure above 50 indicates expansion.

The PMI reading prompted a 0.6% rise in sterling against the dollar to $1.3386.

However, the survey also warned that growth could slow in the months ahead.

It found weak growth in new orders among companies, and also said that worries over Brexit remained.
Mixed outlook

The services sector accounts for about 80% of the UK economy. The latest PMI survey “signalled a solid upturn in overall business activity across the service economy”, IHS Markit said.

Some of the improvement last month was due to companies catching up on work after heavy snow in early 2018. However, the survey also found that growth in new orders “continued to rise at a relatively subdued rate”.

Chris Williamson, chief business economist at IHS Markit said: “The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but… raises questions about the outlook.

“Disappointing inflows of new work suggest that growth could wane in coming months as Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence.”

The services PMI comes after similar surveys of the manufacturing and construction sectors. Mr Williamson said that, taken together, the surveys indicated growth of 0.3-0.4% in the second quarter of the year, compared with just 0.1% in the first quarter.

He added that signs of economic growth rebounding could raise the chances of the Bank of England increasing interest rates again, “but with the forward looking indicators suggesting that the economy could relapse, a rate rise is by no means assured”.
Cost pressures

The survey found that job creation growth was the second weakest since March of last year, with anecdotal evidence that it was being hampered by a lack of skilled candidates for jobs.

Meanwhile, costs were being pushed higher by rising oil prices and wages, “although subdued demand means firms are struggling to pass these higher costs onto customers”, Mr Williamson said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said a second-quarter recovery for the UK’s economy was “on track”, giving the Bank of England a brief window to raise interest rates.

“May’s services report increases our conviction that GDP growth will recover in Q2 following weather-related weakness in Q1,” he said.

Howard Archer, chief economic adviser to the EY Item Club, said the latest batch of PMI surveys pointed to “a reasonable but hardly dynamic pick-up in UK economic growth in May”.

“Furthermore, weakened new business growth maintains concerns over the outlook for the economy,” he added.

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International Commercial InvestmentPound boosted as service sector growth picks up

London rents rising almost three times faster than wages, research finds

by International Commercial Investment on June 5, 2018

Source: The Independent
The price of renting a two-bedroom flat in London has risen at almost three times the rate of earnings growth since 2011, new research has revealed.

While the average rent for a two-bed in the capital soared 26 per cent to £1,500 in the six years to 2017, earnings grew just 9 per cent, research by the GMB union found.

In 16 of 33 London boroughs, rent on a two-bedroom flat jumped more than 30 per cent over the same period, while across England rents rose 18.2 per cent to £650 per month.

Greenwich experienced a 50 per cent rise in rents for the same type of property to an average of £1,350 a month – the biggest rise in the capital, while local wages increased just 7.2 per cent.

Warren Kenny, the GMB’s London regional secretary, said high wages were here to stay and warned that younger workers faced living in private rented accommodation for longer.

He called on employers to pay higher wages to staff to enable them to afford to rent.

“If employers don’t respond with higher pay they will face staff shortages as workers, especially younger people, are priced out of the housing market,” Mr Kenny said.

“It makes little sense for these workers to spend a full week at work only to pay most of their earnings in rents.

“There is a massive shortage of homes for rent at reasonable rents for workers in the lower pay grades.

“There is no alternative to higher wages to pay these higher rents, plus a step change in building homes at reasonable rents.”

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International Commercial InvestmentLondon rents rising almost three times faster than wages, research finds

Tax reform could boost London’s housing market

by International Commercial Investment on May 3, 2018

Source: Financial Times

For years, London’s property market has been a tale of rising prices and ever-increasing demand. But enthusiasm for housing in the UK capital appears to have plateaued. Similarly to the rest of the country, the combination of economic uncertainties and tax changes has resulted in a steady drop in purchases.

According to a new survey from the Royal Institution of Chartered Surveyors, demand for properties has fallen for the 12th consecutive month. The drop has been sharpest in London and the south-east of England. The report also said that prices across the whole of the country are flat, while new instructions from sellers have fallen for the seventh month in a row. Respondents expect the slowdown to continue.

Several factors could be responsible. The UK’s volatile political climate may have hit investor confidence. While the very top end of the market has stagnated for several years, the uncertainty of two general elections could have turned off other segments of the market, too. Brexit could also hold back transactions, as buyers wait to see the result of negotiations. A smooth departure from the EU is still far from guaranteed.

Interest rates have also hit the housing market. Last November’s rise in the Bank of England benchmark rate, to 0.5 per cent, was the first in a decade. The BoE’s Monetary Policy Committee has hinted that further increases are on the horizon. Inflation remains 1 per cent above the BoE’s target, so those with variable-rate mortgages are reluctant to contemplate further borrowing. The Rics report suggests the slowing housing market could even affect deliberations over another rate increase in May.

Although rates remain historically low, mortgage affordability is still a challenge. Until recently, increases in London housing prices came while banks could not make more than 15 per cent of their loans to highly stretched buyers.

Some sellers have also refused to accept that house prices are under pressure. So instead of settling for lower offers, owners are opting to take their homes off the market.

Another factor for the market slowdown is taxation changes. In 2014, then chancellor George Osborne revamped stamp duty to scrap the slab system and replace it with a sliding scale, based on the cost of the property. A tax-free bracket was introduced for homes up to £125,000, plus a new tax for the upper brackets.

The critical threshold was £937,000: purchases over that level paid more stamp duty under the new system. The average London property price is £486,000; all the same, a significant part of the capital’s property market was affected. A year later, Mr Osborne introduced an additional 3 per cent stamp duty tax on properties purchased for renting and second homes.

These changes were designed to balance the market. Their impact, however, was to create disincentives to sell London houses. Instead of trading up or down, homeowners appear to have opted to stay put.

Stamp duty, like other transaction taxes, is arbitrary and inefficient. It could be scrapped entirely and replaced with a reformed council tax that adequately reflects the true value of properties. Purchases of expensive properties still need to be taxed in some form: the housing market cannot be titled in favour of the high end.

Stamp duty reform would be hard to achieve. Even if it succeeds, it would not eliminate all the pain of deflating property prices. But unblocking the top end of the market will have benefits for all London property owners.

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International Commercial InvestmentTax reform could boost London’s housing market