Here are this week’s highlights in the UK economy.
Housing price index reveals sharpest drop since 2008
The beginning of December has revealed the sharpest drop in housing prices since the 2008 financial crisis. Rightmove’s house price index has reported a drop of 2.1%. This drop has been heavily anticipated by analysts, as the market reacts to the instability caused by the disastrous mini-budget. Much of the drop can be explained by the disproportionate increase in mortgage rates, coupled with a large reduction in available mortgage products as some lenders decided to withdraw from the market until the waters of the UK economic landscape had somewhat calmed. The largest dip in house prices was seen in the South-West at 3.4% and the least affected was the North-East, showing a reduction of just 0.9%.
UK GDP estimated to have grown by 0.5% in October 2022
Whilst the UK is, in no doubt, already in a recession, there has been some recent positive news with October figures showing monthly GDP growth of 0.5%. This follows contractionary figures of -0.6% and -0.1% in September and August, respectively. Investors, however, should remain cautious as it is still likely that the economy will get worse before it gets better.
Energy prices soar
UK energy prices have hit an all-time high, energy suppliers are seeing rapid increases in demand as we see temperatures fall dramatically in what was previously described as a ‘mild winter’. The price increases are not solely a result of demand-pull factors. There is a combination of further issues, such as, a recent lull in the production of energy from wind farms and the European gas shortage relating to the war in Ukraine.
Union action adds to winter worries
Much of the recent UK news has been dominated by strike action over job losses, pay and conditions. Walkouts have been planned by, Royal Mail, Border Force, Nurses, Rail Employees and Paramedics. National Rail expects cancellations of up to 4,000 trains per day over during 18th December to the 5th January as overtime arguments rage on. The Government is preparing for an emergency Cobra meeting to discuss how best to deal with the upcoming industrial action. Reports suggest both civil servants and members of the Armed Forces will be trained and deployed in areas such as hospitals and on public transport, likely having to work over much of the Christmas break. It is not just those working in the public sector that will feel the impact, businesses will also be hit with delays and potential cost increases at a time where many are struggling to make ends meet.
Finanze Business Foresights: Base Rate Increase
The Bank of England’s Monetary Policy Committee set to meet for the last time this year on Thursday 15th December. The BoE’s previous inflation target of 2% now seems like a thing of the distant past. Moreover, the current rate of 11.1% is unsustainable and has been targeted by the MPC with Andrew Bailey, Governor of the Bank of England, stating there is more work to be done. The most recent meeting of the base rate committee saw an increase of 75 basis points, the highest increase since 1989. Much of the previous increase was fuelled by the instability of the gilt markets, which have subsequently cooled. However, the BoE now faces the issue of rising wage growth which will only amplify inflationary pressures on UK goods and services. As such, many analysts and investors alike are expecting an increase of 0.5% to 3.5% by the end of the year. Although the central bank is holding its cards close to its chest regarding timescales and peak of the rises, it is highly likely we will see more rate increases into the new year with many anticipating them to settle anywhere between 4.5% to 5% where they will remain for several years to come.
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