Pound could 'hit parity' with US dollar after no-deal Brexit; London house prices slide - business live
Rolling coverage of the latest economic and financial news, as UK housing market keeps slowing and the pound hits fresh lows
- Latest: Parity warning for the pound
- Sterling fell below $1.24 today to 27-month low
- London house prices fell 4.4% in May
- Biggest decline in a decade
- UK house price growth slows to 1.2%
6.10pm BST
Talk of an early general election has also hurt the pound.
Nomura analyst Jordan Rochester said:
"Election talk is why the pound is underperforming again, not much of a surprise to hear given the working majority is close to no majority at all.
Hence why suspending parliament talk is in the air still. It's hard to see any possible positive news for the rest of this week to stop the current trend."
Pound takes more pain as no-deal Brexit fears and election talk linger https://t.co/dGX4LfaY4l
5.00pm BST
Capital Economics also predict further losses for the pound, pushing it towards dollar parity.
Analyst Hubert de Barochez points to Brexit worries, and recent weak economic data.
As far as the outlook for Brexit is concerned, bookmakers' odds indicate that investors have now all but ruled out the possibility that the UK leaves the EU with a deal before the end of 2019. They still suggest that the most likely outcome is that the UK has not left at all. And for all the talk of no deal, they give it a chance of only one in three.
Therefore, sterling could still fall a lot further in the event of no deal, as this outcome is far from being fully discounted. In fact, they are assigning it about the same probability as they did a vote to leave the EU in the original referendum - something which came as a huge shock when it actually happened.
Meanwhile, even if a deal is reached, we doubt that sterling would do very well this year. This is because we expect appetite for risk to wane across the globe as the world economy slows, prompting the dollar to strengthen against most currencies, including sterling.
The upshot is that, in our view, the near-term risks for the currency are still skewed to the downside. But there is a chance that the pound will rebound in 2020 or 2021, if inflation rises and the BoE tightens monetary policy as a result
3.49pm BST
Time for a quick recap
The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the U.K. may be heading towards a harder Brexit.
Should this scenario materialize, pound-dollar could fall into the $1.00-$1.10 range."
3.36pm BST
The pound is struggling back from this morning's 27-month low, to around $1.243 to the US dollar.... but there could be worse to come.
US investment bank Morgan Stanley has warned that sterling could slump to parity against the US dollar if the UK leaves the European Union without a deal.
"The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the U.K. may be heading towards a harder Brexit.
Should this scenario materialize, pound-dollar could fall into the $1.00-$1.10 range."
3.06pm BST
The IMF is also concerned by the gap between countries who run a trade surplus, and those who run a deficit.
Gita Gopinath, head of the Fund's research department, says politicians need to do more to improve their fiscal position while also boosting growth:
Many countries are now near full employment and have limited room to maneuver in their public budgets. So, governments need to carefully calibrate their policies to achieve domestic and external objectives.
Countries with excess current account deficits, like the United Kingdom and the United States, should adopt or continue with growth-friendly fiscal consolidation, while those with excess current account surpluses, like Germany and Korea, should use fiscal space to boost public infrastructure investment and potential growth.
Global current account surpluses and deficits have declined slightly to 3% of world GDP in 2018, while rotating toward advanced economies and away from emerging economies in recent years. Read Gopinath's blog https://t.co/UNlGI6HyQn #ESR pic.twitter.com/PW40ENhoEA
2.57pm BST
The International Monetary Fund has declared that the US dollar is overvalued, a development that may cheer Donald Trump.
"An intensification of trade tensions or a disorderly Brexit outcome - with further repercussions for global growth and risk aversion - could .... affect other economies that are highly dependent on foreign demand and external financing."
2.06pm BST
Many economists and commentators are alarmed by the slowdown in America's building sector.
Here's some early reaction:
#Housing market is very soft. June housing permits were down -6.1% to 1.220M units, the lowest level since May 2017 (1.201M). For the quarter permits were -8.2% vs -6.2% in q1. They are down -4.9% from a year ago. The sector remains one of the weakest areas of the economy
Construction on new homes - housing starts - dip 1% in June. The bigger news is a 6.1% drop in permits, with the South at the lowest ebb in 2 1/2 years. Doesn't seem like lower mortgage rates are offering much lift. https://t.co/K0qpOsmahd
What The... Something Is Clearly Wrong With The US #Property Market As Building Permits Plunge Most In 3 Years Despite Falling #Mortgage Rates. #Construction #Economy #Realestate https://t.co/zSJ6yDgmqx pic.twitter.com/9Q9ZerpgOs
@pboockvar on disappointing housing permits and architectural billings "Bottom line to all this housing and construction news is that lower rates by the Fed isn't going to matter because the cost of money is not currently limiting anything anyway." Don't think Powell got the memo
1) Housing data in this morning is down: permits, starts, completions. But our anchor for home building shouldn't be post Great Recession numbers. The housing industry has never fully recovered, and we're a quarter million new houses shy of where we need to be. pic.twitter.com/SONpEWV5Yo
1.49pm BST
America's housing market is also slowing.
The number of permits granted to build a new home plunged by 6.1% in June, new government data shows. It hit an annual rate of just 1.22 million units, the lowest since May 2017.
12.32pm BST
Britain's financial watchdog has faced the wrath of UK citizens who have lost money from various scandals.
The Financial Conduct Authority's chief executive, Andrew Bailey, received a rough ride at the FCA's annual meeting.
Also somewhat awkwardly (though not unexpected) no applause as FCA CEO Andrew Bailey took the stage
The FCA CEO notes that there is widespread "frustration" that lending to small and medium sized businesses is not regulated in the UK (this became contentious in light of the RBS GRG scandal)
But he seems to be trying to quell further anger over the FCA's lack of action over the RBS GRG scandal. While it's dominated previous annual meetings Bailey says we must now "look forwards and learn lessons from the past"
In response to the LCF question, Bailey says the FCA had powers to intervene over how its products were promoted (though not over the actual mini-bonds themselves), and did so 5 times. He says there's a question over why those interventions didn't have an affect..
Bailey urges her to contribute to the LCF investigation "It's by far the best thing we can do at this stage"
Bailey pledges to intervene again on Guidi's behalf, but he stresses that the law in this country allows loans to be sold to other parties. He says it's unfortunate, but "that's the current position"
The meeting closes to the anger of many people who were waiting to ask questions. They're yelling, accusing Bailey and Randell of "running away" while others say "you're all crooks!"
The FCA team files out quickly
What an ending. Andrew Bailey practically drowned out by cries of "crook!" and "you should all be in jail!" as he tries to close it out and thank people for coming
12.10pm BST
Paul Smith, chief executive of Haart estate agents, agrees that London house prices have further to fall:
"The Tory leadership battle is soon to come to a head. Whilst Boris' proposals to cut stamp duty are attractive, the constant uncertainty and political instability is impacting property markets across the UK, with price growth slowing to just 1.2% this month.
This reduction is largely being driven by price falls in London which tends to feel the impact of political unrest more acutely than other regions of the UK. As we edge ever closer towards the October 31st deadline, and indeed the prospect of a potential no deal scenario, we can perhaps expect a further decline to London house prices over coming months, but thereafter more positive headlines."
12.06pm BST
More expensive London houses have suffered the biggest price hit.
The price of a detached home has slumped by 6% in the last 12 months, while terraced homes are only 2.9% cheaper.
The average detached house in London has fallen in value by 6.1 per cent in the year to May. That's a drop of 55,000 in the value of the average detached London home. (Land Registry figures). pic.twitter.com/XPXG2pHsl2
11.54am BST
London's Evening Standard newspaper is splashing on the capital's house price slump:
Today's a@EveningStandarda(C) - London house prices now falling at fastest pace since financial crash pic.twitter.com/F9QXWE38mN
11.25am BST
This is a neat way of showing how the UK housing market has cooled (green = strong growth, while red = weak)
UK house price heatmap.
Sorry, London! pic.twitter.com/ml55JMeC23
11.07am BST
Here's our economics editor Larry Elliott on the house price slowdown:
House prices in London have fallen at their fastest pace since the financial crash a decade ago as the capital bears the brunt of the nationwide torpor in the property market.
Amid a dearth of potential buyers, the cost of a home in London was 4.4% lower in May than a year earlier, according to the latest official snapshot of the market from the Office for National Statistics.
Related: London house prices fall at fastest rate in 10 years
11.05am BST
With Britain just three months away from a possible no-deal Brexit, you need strong nerves to consider signing up for a large mortgage.
Paul Stockwell, Chief Commercial Officer of Gatehouse Bank (a Sharia-compliant challenger bank) says economic uncertainty is keeping potential buyers out of the market:
"Falling house prices in London have become the norm, but the small annual decline in the North East points to low transaction volumes having an impact on the market across England.
"It isn't the first time prices fell in the North East this year, they also took a small dent back in February and March, but declining buyer activity is almost certainly forcing sellers to drop their prices.
10.59am BST
There's a big difference between 'more affordable' and 'actually affordable'.
Despite the recent slowdown, getting onto the UK housing ladder - or shimmying up a few rungs - is a real challenge.
ONS data out today shows UK house price growth is slowing - but the gap between earnings and house prices that has opened up over the long run still remains stark pic.twitter.com/RR7g9ey5ZC
The national picture is largely driven by what's going on in the capital - London house prices have fallen more than 4 per cent over the last year pic.twitter.com/S3b0usUzhu
But the bigger picture is that for many young people and those on lower incomes buying a home remains out of reach across large parts of the country - not just London & the South East pic.twitter.com/kb1f2iHivG
10.56am BST
Annual Change in London House Prices pic.twitter.com/nAcbSbQnRf
10.55am BST
Economist Rupert Seggins points out that London house prices have still outpaced the rest of the UK over the last decade, despite weakening since the EU referendum:
The longer term picture. Average London house prices up 53% on January 2008 vs a UK average of 24%. Also evident is the flattening in London from mid(ish) 2016 followed by falling prices from mid(ish) 2018. pic.twitter.com/Hw6WeJnn1X
10.45am BST
Richard Donnell of property website Zoopla predicts that the London house prices slide could bottom out next year:
"Annual price falls in London are acting as a drag on the headline rate of UK house price growth, but after three years of price falls in London there are signs that the coverage of price falls is starting to narrow, especially looking at growth over the last three months.
We expect the pace of annual price falls in London to moderate over 2019 and in 2020.
10.44am BST
More reaction to the slide in London house prices:
The @ONS May '19 report released today shows the most expensive area to live in London continues to be Kensington and Chelsea, where the cost of an average house fell -3.9% to just under 1.3 million; contrasting with Barking & Dagenham at 297k, up 2.3% on the year. pic.twitter.com/LS6n5dxRET
If you own a house in London, look away now...
Official transactions-based data show average prices in the capital were down 4.4% y/y in May. That's a 20.8K drop. Ouch. pic.twitter.com/EHi5CZoD3q
10.38am BST
UK house prices actually peaked last summer, when the average property changed hands for 232,000.
Today's data shows the average UK house price was 229,000 in May 2019, up 2,000 compared with the previous year.
10.26am BST
UK house price growth has been slowing steadily since the EU referendum in 2016.
At just 1.2%, house price inflation is at its joint lowest since 2013.
A propos nothing: London house prices are now lower than they were on the day of the referendum.
10.15am BST
Brexit uncertainty and the sheer cost of buying property in London are both weighing on the capital's housing market.
So argues Jonathan Harris, director of mortgage broker Anderson Harris:
'House price growth is slowing as sentiment continues to weaken, partly as a result of Brexit uncertainty. While prices fell in London by 4.4% over the year to May 2019, affordability is still an issue for those buying in the capital and south east as prices remain relatively high compared to incomes.
'Mortgage rates remain low and continue to support transactions. Remortgaging remains strong as many people stay and improve rather than footing the considerable bill for a move to another address.'
10.11am BST
The slump in London house prices is a reminder that the capital is vulnerable to Brexit uncertainty.
Some City banks have already begun moving jobs to other European countries, for example, as they expect to lose their 'passporting' rights to offer services across the EU after Brexit.
9.57am BST
On a regional basis, house prices are rising faster in Scotland (+2.8%), Wales (+3%) and Northern Ireland (+3.5%) than in England (+1.0%).
This chart shows how English house price growth has slowed sharply, dragging the UK-wide growth rate down to 1.2%.
9.50am BST
The slump in London house prices is quite a shock - here's some snap reaction:
Wow
London house prices fell by 4.4% over yr to May 2019 says @ONS the lowest annual rate since August 2009 when it was -7.0%#housepricecrash?
Looked at over a longer horizon, the fall in London house prices is less marked, however... pic.twitter.com/s9sQn7gho2
9.47am BST
The average London house now costs 457,000, the ONS says, compared with 488,527 in July 2017.
Despite recent declines, London is still the most expensive place to buy a house, followed by the South East (324,000 on average) and the East of England (324,000).
9.39am BST
OUCH! London house prices have suffered their biggest fall in a decade.
Prices in the capital slumped by 4.4% year-on-year in May, the ONS reports, worse than the 1.7% decline recorded in April.
Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.
9.34am BST
Newsflash: Britain's inflation rate stuck at 2.0% in June for the second month running.
That means workers are still benefitting from real wage gains -- earnings grew by 3.6% per year in the last quarter.
The overall rate of inflation remains steady, with no change in pace this month. Petrol and diesel prices fell this year but rose a year ago, while clothes prices dropped by less than this time last year."
9.27am BST
Ricardo Evangelista, senior analyst at ActivTrades, fears that the pound will be pummelled to fresh lows through the summer:
The Pound hit a two-and-a-half-year low against the US Dollar and is currently trading below $1.2390. Sterling weakness, to some extent, results from seasonal factors, as it tends to happen during the British summer, but is mainly explained by what is going on in the political sphere.
The willingness to stomach a no-deal Brexit has been growing in the UK, as the political debate concerning who will be the next British Prime Minister has reduced itself to that lowest common denominator, with both candidates boasting about their readiness to walk away from the EU without a deal. It is therefore hardly surprising that the markets are stepping up preparations for what is seen as the worst possible scenario for the UK's economy. Looking ahead to the rest of the summer, Pound risk is surely to the downside.
9.11am BST
UK holidaymakers heading abroad this summer will feel the impact of the pound's slide. Sterling will buy less at the foreign exchange desk, so hotels, meals and ice-creams on the beach will all cost more.
The currency is down 4% against the euro, 5% against the dollar and 6% against the Turkish lira since mid-April. Those holidaying in Brazil will find their spending power particularly diminished, thanks to sterling's 8% drop against the real in the period.
8.57am BST
The slump in the pound this week underlines the fact that political risk is a key threat to the UK economy.
A Bank of England survey released last week showed that political instability is the top threat worrying banks, asset managers, hedge funds, pension funds and other investors.
The number one risk cited this year is U.K. political risk. The second- and third-largest risks identified were geopolitical risk and the risk of a cyber attack. These three risks have been consistently at the forefront of survey respondents' minds for over a year and roughly represent a combined 50% of the worries of the financial market participants.
Notably, the risks that have shown signs of rising are that of an economic downturn (though not in the U.K.), and, likely as a result, a risk of financial market disruption. Historical worries such as sovereign risk, funding, interest rates, regulation and property prices have all diminished. Between 2011 and 2013, sovereign risk was highlighted as the top risk to the financial system in the U.K., but since 2006, the number one concern has been by U.K. political risk.
8.38am BST
Things aren't looking too rosy in Europe's economy either.
Ouch! EU car sales crashed by 7.8% in June YoY, most since Dec, w/ all major markets posting declines for the month. Sales have been falling since Sep2018, bar a 0.1% increase in May. pic.twitter.com/31vN4QiTMo
8.24am BST
Brexit worries are also weighing on the London stock market this morning.
Shares in housebuilders such as Taylor Wimpey and Persimmon are down 1% -- they would be hit hard if a no-deal Brexit hurt consumer confidence.
8.18am BST
Neil Wilson of Markets.com fears that the pound could slump back towards the $1.21 mark, last seen in March 2017.
He explains:
Make no mistake, this decline in the pound is down to traders pricing in a higher chance of a no-deal exit.
Ongoing uncertainty about the direction of Brexit it what is really driving the pound. We need to await the outcome of the Tory leadership race. There is a chance that the pound could find some bargain hunters if they feel likely winner Boris Johnson will soften his views on a hard exit on October 31st. Both leadership candidates are taking the hard line on Brexit to appeal to the Tory membership, but once faced with the granite reality of Number 10, recalcitrant MPs and the EU, realpolitik will win. That said, we are hurtling towards no deal and it may prove a disastrous move for a future PM to delay again.
8.06am BST
The pound has now lost eight whole cents against the US dollar in the last two months, as the Conservative Party leadership contest has rumbled on.
This chart, from the Financial Times, shows how sterling has been the weakest major currency since March - when the Brexit deadline was delayed by another six months.
7.47am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound is under the cosh this morning as another bout of Brexit jitters grip the financial markets.
Fears over the chance of a no deal exit weighing on the Pound. Sterling plunged to lows last traded more than two years ago as it broke below 1.2400 briefly.
Related: Pound hits two-year low as City fears of no-deal Brexit intensify
With markets still underestimating a hard Brexit and a potentially dovish Bank of England the Pound will remain extremely vulnerable in a dynamic shift to a 'no-deal' stance from Brussels before the autumn.
"A Boris Johnson proposal to scrap the Irish backstop has a high chance of being rejected and not seen by the EU as a good reason. And then the UK risks stepping off into the unknown of a no-deal Brexit on Halloween."
FINANCIAL TIMES: Sterling plunges to 2 year low on mounting risk of no deal Brexit #tomorrowspaperstoday pic.twitter.com/uF9A81Ui9J
Related: UK living standards hit by rising prices and weak wage growth
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