A housing market that Britain can't afford?
The business news that matters
There is lots of economic news and analysis to round-up today. Most of it relates, of course, to inflation, interest rates and mortgages…
Banks have been putting up the rates on their mortgage deals again. This time it is NatWest and Nationwide. Natwest has actually put up their rates twice this week. The latest data from Moneyfacts shows that the average two-year fixed rate deal is now at 5.98 per cent, up from 5.92 per cent last week. We are close to 6 per cent mortgage deals becoming the norm…
Sir Ed Davey, the leader of Liberal Democrats, has called for the government to step in with a £3 billion package to support struggling households. This could work in a similar way to the support provided for energy bills, with households effectively getting a grant towards their mortgage. Speaking on BBC Radio 4’s Today programme, Davey said:
“The banks have got to play a bigger role. They need to step in and help people who are in trouble.
“But just as there was before, there needs to be more protection for those who are really suffering and the government just aren’t doing that.”
The Liberal Democrats are a long way from being in government, of course, but this does show the conversations that are happening in Westminster. George Eaton, senior editor at the left-leaning New Statesman, doesn’t think it is far-fetched…
Mortgage rates of 6 per cent may still seem a long way from the 15 per cent that rates hit in the early 1990s. But this is your regular reminder that, because people now have to pay a higher price for a property relative to their annual income, the impact of 6 per cent interest rates is as painful. The bigger gap between earnings and property price has been filled with mortgage debt - debt that now carries a much higher rate of interest and costs more than it did a couple of years below.
The graph below is from Ed Conway, economics editor at Sky News, and illustrates this point…
A new report from the Institute of Fiscal Studies says that one million working-age adults on middle incomes in the UK have less than one month’s income in savings and therefore cannot meet unexpected financial outlays. The Telegraph has looked at this report here. These adults are being squeezed by the rise in mortgage repayments or a rise in rents. It doesn’t help that the amount of student loan debt in the UK has cleared £200 billion for the first time. You can find more details on that here
Meanwhile, data from the Insolvency Service today shows there was a 40 per cent rise in the number of company insolvencies in England and Wales in May compared to a year earlier. This reflects the challenging trading conditions for businesses and the end of support packages that the government offered to get businesses through the Covid-19 crisis. There were 2,552 companies declared insolvent in May, up from 1,825 in May 2022 and 1,685 in April 2023. You can find that report here
However, there are reasons for optimism. Other new data from the Bank of England shows that expectations about how inflation will move over the next year have eased. A survey of the public by the Bank and Ipsos found the median expectation for inflation over the next year was 3.5 per cent, down from 3.9 per cent in February. This suggests households expect the pressure to ease. However, the survey also shows that the public is not satisfied with how the Bank is trying to control inflation. When asked whether the Bank is “doing its job to set interest rates to control inflation” there was a net satisfaction balance of -13 per cent, compared to -4 per cent in February. This means that more people are unhappy with the Bank’s performance than are happy. You can find the full report here.
The chief executive of Tesco, Britain’s biggest retailer, has said there are signs that inflation is easing. “There are encouraging early signs that inflation is starting to ease across the market and we will keep working tirelessly to ensure customers receive the best possible value at Tesco,” Ken Murphy said. Murphy made the comments as Tesco posted a 9 per cent rise in like-for-like sales in the UK for the 13 weeks to May 27. Statement here. Food inflation is currently at 19 per cent in the UK.
Lastly, The Economist has looked at why housing markets and economies in the western world may hold-up better than feared. This is despite the rise in mortgage rates and the squeeze on households, which led to us posing that question that you can see in the headline today. The answer to that question, according to The Economist piece, is that house prices and the housing market will be supported by higher net-migration, the savings that people made during lockdown and people changing how they want to live due to the Covid-crisis and changes to working practices - ie they want to move to a property with a home-office and garden. That piece is here.
So far the UK has avoided recession and house prices have been fairly robust. But that Economist piece also includes some caution. We cannot see the full impact of higher interest rates yet because many people are only just moving on to new mortgage deals. The Bank of England estimates that only a third of the increase in interest rates since the end of 2021 has actually fed through to consumers and businesses so far. That estimate is included in an analysis by Bloomberg, which looks at the difficult decision facing the Bank when it meets to set interest rates next week. You can find that piece here
Other stories that matter…
1. Some startling facts about the issues with transport infrastructure in the UK: Leeds is the largest city in Europe without a mass transit system, Manchester is the largest city in Europe without an underground train network and Manchester and Sheffield are the biggest adjacent cities in Europe that are not connected by a motorway (you have to take the A57). You can find more stats and analysis like this in the latest edition of The Tribune, the Sheffield-based newsletter, which has spoken to data and infrastructure expert Tom Forth. The piece is here
2. Global media groups are in talks with technology companies about getting paid for their content being used to train new artificial intelligence tools like ChatGPT. The talks have been revealed in a story by the Financial Times. Apparently Google recognises that media groups should be paid and is leading negotiations in the UK about some form of licensing deal. Full story here. The companies behind AI technology are going to face a wave of legal action over copyright breaches if there isn’t a deal. In other media news, the Reuters Institute at the University of Oxford has released the Digital News Report 2023, which is the leading annual research on the state of the industry and consumer habits. The report shows the growing importance of TikTok as a way to share news, according to an analysis by Nieman Lab, which you can read here. The full report is here. Also, for those wondering, the Daily Mail’s new mystery columnist is rumoured to be Boris Johnson…
3. New York City has stress-tested a doomsday scenario where the value of office properties falls by 40 per cent between now and 2029 due to people working from home. The analysis found that the city would only lose about 1.4 per cent of its annual tax revenues. This is interesting for UK cities which are concerned about what happens if office workers don’t return. Perhaps there are more opportunities than they thought. Bloomberg story here. However, one city where the problems appear to getting worse is San Francisco. Westfield is handing over its shopping centre in the heart of the city to lenders. This comes after Nordstrom, the department store chain, closed its shop there. The mayor of San Francisco says the decision is due to Westfield’s parent company focusing outside the US. Story here
4. The latest column by Alistair Osborne, my former colleague at The Times, looks at the doubts around the City of London’s ability to attract new companies after WE Soda scrapped plans to float. Rather than use this as another opportunity to bash the City, he writes, investors should be praised for their caution when considering whether to buy shares. “Britain is bending the listing rules to lure more companies to London, but nothing ruins the IPO market faster than a big, overpriced float,” he writes. Full piece here
5. Lastly, the Ashes got underway this morning at Edgbaston in Birmingham. The five-match series started at 11am with Zak Crawley hitting the first ball for four. That is a stark contrast to the last series in Australia in 2021, when Rory Burns was bowled with the first ball. A sign of things to come? The ever-reliable BBC live-blog has all the updates and instant highlights here
And finally…
Congratulations to Ynyshir for being named the best restaurant in the UK for the second year in a row by the Estrella Damm National Restaurant Awards. The restaurant is located in Eglwys Fach, west Wales, just south of the Snowdonia national park. Ynyshir prides itself on offering an experience as well as great food. Customers are advised by the website to “allow four to five hours for the dining experience”. It isn’t cheap - dinner is priced at £375 per person. Chef Gareth Ward is pretty matter-of-fact about what customers should expect. “We do not cater for any dietary requirements and do not offer substitutions for any of the dishes,” the website says. You can find Ynyshir’s website here and the full list of top restaurants in the UK here.
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Best
Graham