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One in four UK households now predict the Bank of England to cut interest rates

The number of households expecting the Bank of England (BoE) to cut interest rates has risen to its highest level since the Brexit referendum, survey data showed today, as Britons remain downbeat about their financial health over the coming months.

Households are pessimistic despite wages rising at a fast pace and unemployment close to record lows. Brexit uncertainty has been one factor dampening the mood, and there are signs that Britain’s jobs boom is slowing down.

The UK household finance index – a gauge of people’s perceptions of financial wellbeing by data firm IHS Markit – edged up to 44.4 in October from 43.1 in September.

The figure was the gauge’s highest mark since January but nonetheless signalled pessimism among households about their finances. A score of under 50 is considered a negative reading.

IHS Markit economist Joe Hayes said the “latest survey results from UK households continue to show how economic and political uncertainty is holding back what could have been a more resilient growth period for the UK economy”.

“These concerns, coupled with the uncertain economic outlook, have led to an increased proportion of UK households expecting the Bank of England to cut interest rates.”

At the start of the year over 70 per cent of UK households through the BoE would hike rates when it went to change them. That number has now fallen to around 58 per cent, its lowest level in two years.

A growing number of households – 25 per cent – now expect the Bank’s next move to be a cut, the highest proportion since October 2016.

Hayes said: “Negative job security perceptions and a pessimistic financial health outlook have led UK households to delay spending, with major purchases suffering as a result.”

By Harry Robertson

Source: City AM

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UK Inflation Continues its Downward Trend and is Unlikely to Pick Up Anytime soon

The Consumer Prices Index measure of inflation in the UK showed prices increased by 1.7% year-on-year in September, unchanged on the previous month but a shade below the market’s expectation for a more robust reading of 1.9%, as a trend of steadily declining price pressures on the UK consumer extends.

According to the ONS, the softer-than-expect inflation reading was driven by downward pressures to the costs of motor fuels, second-hand cars, and electricity, gas and other fuels.

However, increases in the cost of furniture, household appliances, hotel overnight stays, and from recreation and culture items limited the decline in the prices consumers are paying.

The data confirms a steady trend of declining cost pressures in the UK, with prices moving steadily lower from the multi-year peak of 3.1% measured in November 2017.

The movement in prices will almost certainly only add to the perception that there is little reason for the Bank of England to raise interest rates anytime soon.

Yesterday’s labour market data confirmed the jobs market is softening, and combined with the downward trend confirmed by today’s inflation data, the Bank of England could in fact see scope for an interest rate cut as being their next move.

Such an outcome would likely weigh on Sterling’s outlook, as currency’s tend to fall when their central bank signals it is about to enter a rate cutting cycle.

Of course, it it is too soon to speculate on Bank of England policy moves, as it will be heavily Brexit dependent. But, strip out Brexit and we see the pressures to raise rates that were in place at the start of 2019 have now certainly evaporated.

And, cost prices are only likely to stay lower for longer, according to economists.

“Absent hard Brexit and a significant decline in Sterling inflation are likely to keep undershooting BoE’s 2% target. Meanwhile, the decelerating global demand could act as another deflationary impulse as Chinese goods blocked by tariffs in the US are likely to make their way towards Europe. BoE is likely to stay put for a while as, considering how fragile the UK economy is at the moment, a policy mistake would be disastrous,” says Artur Baluszynski, Head of Research at Henderson Rowe.

Written by Gary Howes

Source: Pound Sterling Live

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Market slows as Brexit uncertainty continues

The UK property market has continued to slow in the face of Brexit uncertainty – except for an 8% increase in first-time buyers exchanges – the TwentyCi Property & Homemover Report for Q3 2019 has shown.

The report found that whilst property exchange volumes held up with 966,464 homes exchanged in Q3 (marking a 2.2% growth year-on-year) there was a decline of new properties coming on the market.

Q3 saw a total of 1,715,395 new instructions, 212,319 fall throughs and 801,013 withdrawals in the market, to change agent, or withdraw in this quarter.

Properties valued at £300k and below sold best in Q3, with exchanges up across all property price bands to this value compared to the same period last year.

More properties were also exchanging from lower income household bands from £15,000 upwards. Overall households with income bands of £20,000-£50,000 were proportionally buying and selling more properties covering a total of 126,941 exchanges.

Colin Bradshaw, chief customer officer at TwentyCi, said: “Consistent to our previous reports, this last quarter has again shown an overall slower moving market, reflecting the current unpredictable trading environment.

“Consumers are showing caution when it comes to both buying and selling property. With the likely outcome of Brexit still unclear, the uncertainty over both the economy, consumer confidence and the housing market will persist at least in the short-term.”

Nationwide, there is a clear North-South divide with any growth in average asking prices across the North of the UK and the Midlands, while London and the south show a small percentage reduction in average asking prices.

The figures reveal a 7% growth in Scotland, 5% in North East, 4% in Yorkshire and the Humber and 2% in the North West and East Midlands.

However there was a fall in asking prices of -3% in London, -2% in South East and -1% in South West.

But across the UK’s major cities average asking prices have been more resilient overall with more major cities reporting an increase for example, Leeds (7%) and Nottingham (5%) or holding steady – with the exceptions being Birmingham (-1%), London (-3%) and Southampton (-3%).

By Ryan Fowler

Source: Mortgage Introducer

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BoE might not be able to cut rates if Brexit delayed again – Ramsden

Bank of England Deputy Governor Dave Ramsden said he did not share the views of some of his colleagues who have suggested the British central bank might cut interest rates if the Brexit crisis drags on beyond the current Oct. 31 deadline.

In an interview with The Telegraph newspaper, Ramsden said Britain’s economy had been so damaged by uncertainty about Brexit – chiefly via a steady fall in investment by companies – that it could hamper the BoE’s ability to help it.

Referring to a scenario raised recently by the BoE of “entrenched uncertainty” if the deadline for leaving the European Union is pushed back again, Ramsden said: “I see less of a case for a more accommodative monetary position.”

Fellow BoE rate-setters Michael Saunders and Gertjan Vlieghe have suggested that another delay to leaving the EU might mean lower rates in Britain.

Prime Minister Boris Johnson says he will take Britain out of the EU on Oct. 31, with or without a deal, but lawmakers have passed legislation which they think will force him to seek a delay if no transition agreement is struck in time.

Ramsden told The Telegraph that he was cautious about the economy’s growth potential due to Britain’s poor record on productivity which contracted at the fastest annual pace in five years in the second quarter.

Company wage costs were “picking up quite significantly, which will drive domestic inflationary pressure” while spare capacity in the economy might not have opened up much despite the weakness in underlying growth, he said.

“I think supply potential, the speed limit of the economy, is also slowing through this period. That comes through for me pretty clearly in the latest productivity numbers.”

The global trade war was weighing on firms’ willingness to invest around the world too, Ramsden said.

Several BoE officials, including Governor Mark Carney, have said if Britain leaves the EU without a transition deal, they would probably move to cut rates.

Ramsden said higher public spending announced by finance minister Sajid Javid would also be a factor for the BoE as it would mean “more money going into the economy.”

He declined to comment when asked by The Telegraph whether he had applied to replace Carney, who is due to leave the BoE at the end of January.

Reporting by William Schomberg

Source: UK Reuters

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Brexit impasse leads to stand-off in housing market as buyers and sellers both stay away

Both buyers and sellers are sitting on their hands, as the unpredictable Brexit crisis wears on.

The RICS said that there is little sign of the impasse in the housing market ending, with appraisals down on this time a year ago.

It said that new instructions across the UK have slipped to the weakest in three years, with sales, buyer demand and supply all in negative territory.

The RICS said that average stock levels on estate agents’ books are at record lows, with activity among buyers and sellers slipping in virtually all parts of the UK.

House prices have slipped across London and the south-east, said the RICS, but are up in Northern Ireland, Scotland and the north-west.

Most of the RICS estate agents responding to the latest survey, covering September, expect no pick-up for the rest of this year.

However, looking further ahead, 18% more RICS agents expect prices to rise over the next year than do not.

RICS chief economist Simon Rubinsohn said: “There are good reasons for thinking the latest dip in both buyer enquiries and vendor instructions is a response to the endless wrangling about Brexit, as the October 31 deadline approaches.

“However, unless there is a speedy resolution to the ongoing impasse, it does seem inevitable that the stand-off between purchasers and sellers will deepen, making it harder to complete transactions.

“This will not only be a direct hit on the housing market itself but could have ramifications for the wider economy as the normal spend on furniture, fittings and appliances that typically accompanies a house move is also put on hold.”

The RICS this morning also reported a decline in landlord instructions but a rise in tenancy demand.

The survey sample drew 323 responses, covering 547 branches.

By ROSALIND RENSHAW

Source: Property Industry Eye

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UK economy starts to show cracks under Brexit and global strains

UK economy is increasingly showing signs of strain as the Brexit crisis and the global slowdown intensify, with the loss of momentum appearing to spread to areas which have hitherto been sources of growth.

Confidence among businesses has ebbed to its lowest levels since the global financial crisis.

The labour market, which has long been a silver lining for the economy, is also starting to show signs of slowing, raising questions about the strength of consumer spending.

The different Brexit scenarios for the world’s fifth-largest economy make it hard to gauge the outlook for the year ahead, not least for the Bank of England, and some investors fear Britain is already flirting with recession.

Economists polled by Reuters last month put the probability of a recession within a year at 35%.

Below are some indicators of the British economy and how they have changed since the June 2016 Brexit vote.

BUSINESSES STRUGGLE
Pessimism among businesses has reached the highest levels in years.

The gauges of future activity in the Lloyds Business Barometer, CBI Growth Indicator and IHS Markit/CIPS surveys have all turned weakened recently.

The closely watched IHS Markit/CIPS survey last week showed Britain’s dominant services sector contracted unexpectedly in September — and marked the worst reading in a major developed economy.

HOUSEHOLDS STILL SPENDING

Household spending has supported Britain’s economy since the Brexit vote, although there are signs that households have spent more on non-discretionary goods such as food, while spending in restaurants and hotels has weakened.

As of the second quarter, spending on the latter was about 1.5% lower than in mid-2016, but nearly 7% higher for food and non-alcoholic drinks, according to official data.

Figures from the British Retail Consortium and payment card company Barclaycard published on Monday showed shop chains had their worst September since records started in 1995, although spending on entertainment increased.

LABOUR MARKET

The labour market is the strong point of Britain’s economy but some cracks have appeared recently. Employment fell in annualised terms in the six months to July 2019 to the greatest extent since early 2012.

Wage growth is at a decade-high although the BoE has said it may have peaked and there has been no pickup in productivity.

A measure that BoE policymakers like to look at — the three-month annualised growth rate of private sector earnings, excluding bonuses — slowed in July from an almost five-year high of 5.9% in June.

INVESTMENT

Although the Office for National Statistics has revised up the level of business investment in Britain’s economy lately, the figures still show capital expenditure has stagnated since the Brexit vote.

Business investment is running about 5 billion pounds lower than it would have been had it followed its pre-Brexit vote trend since the financial crisis, according to the latest data.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters

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UK still an attractive place to invest despite Brexit uncertainty, report finds

The UK has retained its position as one of the world’s leading hubs for business, according to a new report which suggest investors have taken a ‘wait-and-see’ approach towards Brexit.

In a comprehensive global index released this morning, the UK was ranked as one of the best global hubs for business, scoring highly for its low start-up costs and attractiveness for foreign investment.

Business advisory group Eight Advisory, which produced the report, suggested the long-term cost of Brexit has yet to emerge across a wide range of economic and wellbeing indicators.

“While Brexit creates considerable uncertainty the foundations of the UK’s economy are particularly strong, and it remains an attractive place to invest and do business,” said Alexis Karklins-Marchay, a partner at Eight Advisory and prominent figure within the French business community.

He told City A.M.: “Confidence has plummeted in the last 3 years, but Britain should have confidence in its own ability. This is one of the most competitive countries.”

Despite scoring highly in areas such as human freedom, higher education and happiness levels, the UK’s productivity was found to be “an ongoing and long-running concern”.

Eight Advisory also said that Brexit was proving a “distraction from the issues facing the UK economy”, such as productivity and standards of primary education.

The report comes weeks after consultancy Z/Yen showed that London has clung onto its second place in a ranking of the world’s top financial centres, but its position in the top tier is under threat amid Brexit chaos and other geopolitical shifts.

“There are fundamental issues that need to be addressed if the UK’s hard-earned reputation as an international leader is to be protected in the long term,” Karklins-Marchay added.

By Sebastian McCarthy

Source: City AM

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House sales tumble over uncertainty about Brexit

HOUSE sales in parts of London have fallen more than 40 per cent since the Brexit vote, according to latest figures.

The average across Britain was also found to be down — nine per cent — after sales in the 12 months before the vote in June 2016 were compared with the 12 months leading up to May this year by the Yorkshire Building Society.

It found the London boroughs of Brent, Kensington and Chelsea, and Westminster boroughs saw a fall of between 39 and 43 per cent.

However, it wasn’t all bad news as parts of the country saw sales increase. Torfaen, in southern Wales, for example, saw a surge of 45 per cent.

Yorkshire’s Nitesh Patel said: ‘The housing market has become more stagnant in the UK as a whole since the EU referendum. But, when we break down the analysis to a regional and local level, the picture becomes more complex.’

Drops in London could be down to investors and overseas buyers being put off by the political uncertainty, he said. High prices and low supply were also affecting the market in the south-east. The east of England and the midlands also fared badly.

However, parts of the north, Wales, Scotland and Northern Ireland saw ‘significant house sales growth’.

Mr Patel said rising wages and record full-time employment have made buying a home generally more affordable.

He added: ‘This downturn is likely to be a temporary phenomenon which will continue while uncertainty around Brexit exists.’

By Vicky Shaw

Source: Metro News

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UK rate cut ‘plausible’ if Brexit uncertainty persists: BoE’s Saunders

The Bank of England may need to cut interest rates in the likely scenario that high levels of uncertainty over Brexit persist, policymaker Michael Saunders said on Friday in the first clear signal that the BoE is considering a cut.

Last week, without directly raising the prospect of cutting interest rates, the Bank of England said Brexit and slower world growth were increasingly causing Britain’s economy to perform below potential.

Saunders – who was one of the first BoE policymakers to vote for higher interest rates in 2017 and 2018 – said it was now his view that the unpredictable path of Brexit would effectively act as a “slow puncture” for the economy.

“Growth has slowed to a mere crawl,” he told local businesses in Barnsley, northern England. “I think it is quite plausible that the next move in Bank Rate would be down rather than up.”

After the comments, sterling GBP= fell by as much as half a cent against the dollar to a three-week low, and short-dated government bond yields dropped 4-5 basis points as investors priced in the increased chance of lower borrowing costs.

Prime Minister Boris Johnson has pledged to take Britain out of the European Union by Oct. 31, without any transition agreement if necessary, but is in a standoff with parliament which has voted to block a no-deal departure next month.

Even if Britain temporarily avoids a no-deal Brexit, uncertainty was likely to remain high, either due to the risk of a no-deal Brexit in 2020 or due to a lack of clarity about longer-term trading relationships with the EU, Saunders said.

“In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing,” he said.

British economic growth continuing at its current level of 0.1%-0.2% would be sufficient to justify lower rates, due to the risk of slack opening up in the economy and pushing inflation further below its 2% target, Saunders said.

The economy shrank by 0.2% in the second quarter of 2019 and last week the BoE trimmed its third-quarter growth forecast to 0.2% from 0.3%, while inflation dropped more sharply than expected to 1.7% in August.

David Cheetham, chief market analyst at brokers XTB, said the BoE looked increasingly likely to follow the U.S Federal Reserve and European Central Bank and cut rates.

“The economy is still barely keeping its head above water. Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front … and it is actually pretty shocking that a comment that a rate cut is ‘quite plausible’ has caused such a response.”

NO WAIT AND SEE

Simply waiting to see what happened with Brexit risked leading to inappropriate monetary policy, and the cost of reversing a rate cut if the outlook brightened would be low, Saunders added at the event hosted by the Barnsley and Rotherham Chamber of Commerce and Institute of Chartered Accountants.

“In general, I would prefer to be nimble… accepting that it may be necessary to change course if the outlook changes significantly,” he said.

Saunders still agreed with recent BoE guidance that a limited and gradual increase in interest rates would be needed over the medium term, if Brexit uncertainty reduced significantly and global growth perked up a bit.

In the event of a no-deal Brexit, Saunders repeated the BoE position that all policy options would be open.

Earlier this month, BoE Governor Mark Carney estimated in a worst-case, chaotic scenario that a no-deal Brexit could reduce the size of the economy by 5.5%. The Paris-based OECD has predicted a 2% hit in the case of a more managed no-deal Brexit.

Saunders was clear that a no-deal Brexit – advocated by some Brexit supporters as a way to resolve the uncertainty facing businesses – was not a good solution. “This would probably immediately leave some firms unprofitable. Others might face longer-term questions about their viability, or whether they would be better off relocating.”

Reporting by David Milliken

Source: UK Reuters

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Brexit and the housing market: prices drop and fewer homes are put up for sale

If you’re considering buying a house at the moment, you might want to know what the current, realtime impact of Brexit on the UK housing market is, and whether local house prices are the main thing you should be worried about.

Well, according to the latest Rightmove House Price Index, there’s more to the effects of the current political situation than the downward trend in house prices that we’ve been seeing. More on that in a minute.

First things first: it is true that Brexit is continuing to drag house prices down, especially in London and the South East, and in particular where it comes to bigger and top-tier properties.

On average, London properties are 2.1 per cent cheaper this September than they were the same time last year. By contrast, asking prices in the first-time buyer sector have actually increased by 0.6 per cent compared to August.

However, the far starker effects can be seen in the supply figures – in other words, how many properties are up for sale. Many people are holding off putting their homes on the market, with the number of newly listed properties down by a huge 7.8 per cent this September compared to a year ago.

This scarce supply is having a knock-on effect on would-be movers, many of whom are now unable to find suitable properties to move on to. The situation is much more severe in London, where the number of newly listed properties has fallen by a massive 20 per cent.

‘All regions are down on their numbers for both sales agreed and properties coming to market,’ comments Rightmove director Miles Shipside. ‘Some regions are just marginally behind the previous year, but they are all seeing less activity in these two key metrics, showing that hesitation is now more widespread rather than being localised to just some parts.

‘However, some of that will be due to difficulty in finding the right property to buy, as activity still remains brisk in some locations, evidenced by continuing upwards pricing pressure in some parts of Great Britain. Uncertainty is clearly not just about the political situation, with finding the right property to buy being a bigger worry for many.’

The takeaway from these stats is that if you’ve found a property you like and are in a position to buy, now is not the time to hesitate. You can read more about why Brexit shouldn’t stop you moving house in the news piece we published earlier this week. Our advice? Use the autumn lull to your advantage and negotiate a good price, if you can find a property you like.

BY ANNA COTTRELL

Source: Real Homes