The house price index, interest rates, GBP value, inflation, wages & consumer spending
By Alex at Aboda, May 16 2017 12:29AM
The Bank of England decided last week to leave interest rates at their historic low of 0.25% while warning about the effects of high inflation. This week, we will see how far inflation has risen above target as new figures are released. The official UK house price index will also be published on Tuesday.
Here's our summary of the highlight's of the reaction and speculation to this from various sources:
Pound Euro Exchange Rate Falls Back to 1.17 – Fails to hold multi-week highs
Bank of England News Weakens Pound – Investors disappointed by cautious outlook
GBP Forecast: UK Inflation Data on Tuesday – Employment stats on Wednesday
EUR Forecast: Eurozone Growth Projections on Tuesday – Inflation follows on Wednesday
EY Item Club sees first decline in job creation since 2009
Joblessness to rise and real wage growth will be ‘negligible’
Britons face a “rockier” labour market in the coming years that’s going to limit an improvement in wage growth, according to EY Item Club.
A separate survey by the Chartered Institute of Personnel and Development published on Monday was even more pessimistic on wages, indicating employers intend to raise basic pay in the year ahead by just 1 percent.
EY blames its gloomier outlook on a slowing economy and lower demand for workers. That will cause the first annual drop in the number of people being hired since the financial crisis, stagnating real pay growth and greater joblessness
Despite softer growth, the Pound’s drop since the Brexit vote means the U.K. is facing a sharp inflation pick-up. Data on Tuesday is forecast to show that prices rose an annual 2.6 percent in April, the strongest since 2013. A day later, the worsening squeeze on workers will be highlighted in figures expected to show wage growth stuck at 2.2 percent in the first quarter.
The BOE kept its benchmark interest rate at a record-low 0.25 percent last week, though it warned that inflation will rise faster this year than previously predicted
The CIPD’s quarterly survey of 1,000 companies suggested Britons face slowing wage growth, with employers’ median basic pay expectations in the 12 months to March 2018 dropping to 1 percent compared to 1.5 percent three months ago. That’s the lowest its been for 3 1/2 years.
“There is a real risk that a significant proportion of U.K. workers will see a fall in their living standards as the year progresses," Gerwyn Davies, labour market adviser at the CIPD, said in a statement. “This could create higher levels of economic insecurity and could have serious implications for consumer spending."
Concerns over the Bank of England’s seemingly relaxed attitude towards inflation are being balanced by optimism over the result of next month’s General Election.
In its Quarterly Report, released prior to the MPC meeting last Thursday, the outlook for the peak inflation was raised to 2.8%. It is expected that this will be reached sometime this autumn. Analysts, always enjoying second guessing the official statistics, see the peak at nearer 3.5%.
Despite raising the expected peak from 2.7% to 2.8%, the BoE also pushed further into the future the next expected rate hike. Without mentioning it, concerns over how Brexit negotiations will go are clearly at the bank of Mark Carney’s mind.
Officially, they have not tried to “forecast what would happen in a disorderly Brexit”. The outcome would be too unpredictable not only for the U.K but also for the E.U. and the global economy.
While inflation looks set to overshoot its target for some months to come, the slowdown in wage growth and squeeze in consumer spending means that a rise in interest rates looks unlikely to occur in the short term. Could this mean that we have not yet seen the lowest ever mortgage rate?
The Yorkshire Building Society has just launched a mortgage rate of 0.89% for 2 years, reported to be Britain’s lowest ever rate. This deal is not fixed and is restricted to house buyers borrowing no more than 65% of the property’s value, mortgage rates.
Low mortgage rates (along with Government housing schemes) are helping to attract first time buyers into the market. The Council of Mortgage Lenders report that there were 342,000 first time buyers in the last 12 months, the highest level for nine years.
Headline grabbing rates are sometimes offered by lenders over a short time frame to help drive higher lending volumes but the trend is true across the market. Average mortgage rates have fallen over recent years and even more since the start of the year. In 2014, the average mortgage rate for 2 year fixed mortgages was 2.4%. By March 2017, the average rate had fallen to 1.37%. For buyers looking to fix for longer, the average rate for a 5 year fixed deal is now 2.15%, down from 3.52% in 2014. These rates assume a loan to value ratio of 75%.
Interesting times ahead...especially regarding the reaction to this weeks planned announced figures- watch this space! :-)