Alex Lyle, director of Richmond estate agency Antony Roberts, has also seen signs that the housing market is cooling:
‘It is getting more difficult to call the market – on the ground, it feels as though activity has slowed a little over the past few weeks, due most likely to a lack of stock, combined with various bank holidays and half term rather than rising interest rates and inflation.
‘The imbalance between supply and demand continues to fuel house price growth. Such little stock is coming onto the market, while buyer enthusiasm for a competitive-bidding bun fight appears to be waning. Some down-valuations are also beginning to creep in, which we haven’t seen for quite a while.’
Nicky Stevenson, Managing Director at national estate agent group Fine & Country, reports that the housing market is being hit by the cost of living crisis:
“Annual price gains are finally beginning to decelerate as challenges in the broader economy start to filter through to the housing market.
Many households are struggling amid the deepening cost of living crisis and it was only a matter of time before we saw a knock-on effect in price growth.
While an imbalance still exists between supply and demand, things are slowly beginning to shift and at last we are seeing a steady rise in new listings.
Though momentum remains stronger than many had anticipated, there may be room for further moderation in the months ahead if pay packets continue to be eroded and the Bank of England increases interest rates.”
Business leaders are growing more anxious about the economic outlook, as they grapple with rising costs and the UK’s new trading relationship with the EU.
The Institute of Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, sunk to -45 in May, down from -36 in April.
That’s the lowest reading since October 2020, just before the first successful Covid-19 vaccine trials results were released.
The overwhelmingly most frequent reason for pessimism for the UK economy was inflation (41%), followed by difficulties in the UK’s trading relationship with the EU (20%).
Kitty Ussher, Chief Economist at the Institute of Directors, said these problems are deterring investment.
“Disappointment in the performance of the UK macroeconomy, in particular around inflation but also in the everyday impact of Brexit, is affecting the very real investment decisions of business leaders.
We can now see a clear connection between the slide in the confidence that directors have in the UK macroeconomy and a trend of increasing caution around investment.
Here are more details from the report:
- ‘UK economic conditions’ continues to be the most commonly cited negative factor affecting business (50%), followed by the ‘new trading relationship with the EU’ (40%) and ‘global economic conditions’ (40%).
- Investment intentions have also fallen to a post-pandemic low, with almost as many firms saying they plan to reduce investment in the next year (22%) as raise it (25%).
- Inflation expectations are worsening, with only 28% now expecting inflation to be near the Bank of England’s 2% target before the end of 2023 (down from 33% in April).
- However business concerns about energy costs, although high, may have peaked: 38% stated that the cost of energy was having a negative impact on their organisation in May, down from 53% in March.
Good morning, and welcome to our rolling coverage of business, the world eocnomy and the financial markets.
UK house price growth has slowed as the cost of living squeeze hits households, although prices are still rising much faster than wages over the last year.
Lender Nationwide reports that May saw “a slight slowing” in the rate of annual house price growth. Prices were 11.2% higher than a year ago, down from 12.1% in April.
But prices aren’t actually falling — they rose 0.9% month-on-month in May, the tenth successive monthly increase, making it harder for first-time buyers to get onto the housing ladder.
Robert Gardner, Nationwide’s Chief Economist, says the housing market has shown a surprising amount of momentum in the face of rising inflation and interest rates.
But a slowdown is looming, he says, as consumer confidence is hit by the cost of living squeeze.
Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows, and with the number of job vacancies at a record high. At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.
“We continue to expect the housing market to slow as the year progresses. Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high. Measures of consumer confidence have already fallen towards record lows.
Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.
Yesterday, the Bank of England reported that the number of mortgages approved by UK lenders had dropped to its lowest since June 2020. That could be a sign the housing market was cooling.
Less than 66,000 mortgages were approved in April, down from 69,531 in March and 73,220 back in January.
Also coming up today
The latest surveys of purchasing managers at UK and eurozone factories are likely to confirm that growth slowed last month, raising fears that a recession may be close.
The oil price has dropped sharply overnight, on reports that Opec could suspend Russia from their oil production deal. That would allow members such as Saudi Arabia and the United Arab Emirates to produce more oil to meet Opec’s existing production targets.
Transport Secretary Grant Shapps has demanded a meeting with aviation bosses to find out “what’s gone wrong”, as travel chaos deepens across the country.
The International Air Transport Association (Iata) has blamed the half-term gridlock on problems getting clearances for new staff, saying the time taken to approve recruits has more than tripled:
European markets are set to begin June with small gains:
- 7am BST: Nationwide’s UK house price index for May
- 7am BST: Russia’s manufacturing PMI for May
- 9am BST: Eurozone manufacturing PMI for May
- 9.30am BST: UK manufacturing PMI for May
- 10am BST: Eurozone unemployment report for May
- 2.45pm BST: US manufacturing PMI for May
- 3pm BST: Bank of Canada interest rate decision