UK consumers borrowing again as economy reopens; US and UK house prices surge – as it happened

Graeme Wearden

from on 2021-06-29 15:52 (#5KN37)

Rolling coverage of the latest economic and financial news

Latest: US house prices in truly astonishing' surge
UK consumer credit rose in May, first time since August 2020
Consumer credit borrowing outstrips repayments...due to car loans and personal loans
Households put less into bank accounts, as shops and hospitality reopened

Earlier:

SMMT: UK jobs at risk without more battery factories
Nationwide: Prices jumped 13.4% in last year in race to avoid stamp duty but outlook is harder to foresee"

7.51pm BST

Time to wrap up...

7.33pm BST

The most exciting news of the day (apart from the football) is that flying cars will be a reality in cities around the globe by the end of this decade, according to one leading manufacturer.

My colleague Joanna Partridge explains:

Michael Cole, the chief executive of the European operations of South Korean carmarker Hyundai, said the firm had made some very significant investments" in urban air mobility, adding: We believe it really is part of the future".

Cole conceded: There's some time before we can really get this off the ground.

4.49pm BST

With City traders' minds turning to Wembley Way, the London stock market has closed a little higher tonight.

European markets have had an altogether more positive tone after yesterday's declines; however, the shadow of Delta continues to overshadow wider sentiment.

Travel and leisure are once again feeling the heat after Spain removed UK visitors off their list for restriction free travel with TUI seeing the largest losses, with Ryanair, easyJet and IAG also lower. Rolls Royce is also underperforming as its target of achieving wide body engine flying hours of 55% of the levels of 2019, starts to look increasingly difficult to hit.

4.45pm BST

The British public's expectations for inflation were broadly steady this month, according to a survey on Tuesday, that will give the Bank of England more confidence that rising prices are not becoming engrained in the popular psyche, Reuters reports.

Inflation expectations for the year ahead ticked up to 2.8% in June from 2.7% in May, the survey from U.S. bank Citi and pollsters YouGov showed.

3.52pm BST

US consumer confidence has hits its highest level since the COVID-19 pandemic began, boosting hopes for a strong economic recovery this quarter.

The Conference Board's index of consumer morale jumped to 127.3 this month, up from 120.0 in May, to the highest level since February 2020, from 120.0 in May.

Consumers' short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead."

While short-term inflation expectations increased, this had little impact on consumers' confidence or purchasing intentions. In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose-a sign that consumer spending will continue to support economic growth in the short-term.

Vacation intentions also rose, reflecting a continued increase in spending on services."

Thinking positively on Main Street: US Consumer Confidence Index continued to rise in June & is "currently at its highest level since the onset of the pandemic's first surge in March 2020," says Conference Board's senior director of economic indicators: https://t.co/A8fruZntpy pic.twitter.com/zTLsGi8QsM

US Conference Board measure of consumer confidence is up strongly with gains for pretty much all measures. Readings were very strong for jobs and income expectations while currently 54.4% of respondents think jobs are plentiful with just 10.9% thinking they are hard to get. pic.twitter.com/8NbIAkiVfU

US Consumer Confidence rose sharply in June, reaching its highest post-#Covid level. ht @HedgeyeDJ pic.twitter.com/F4Yu57ccsp

Consumer Confidence is also surging on this side of the pond, as US Consumer Confidence rose for the fifth consecutive month to the post-COVID highs in June. pic.twitter.com/Dp2e27Axkw

3.37pm BST

With excellent timing, the Bank for International Settlements has flagged that reecnt house price increases have been unusually large'.

Presenting its annual report today, BIS general manager Agustin Carstens points out that financial conditions have remained extraordinarily easy" since the pandemic began, thanks to fiscal stimulus from governments and very loose monetary policy from central bankers.

Credit spreads declined close to historical lows. Even as profits tanked, corporate funding flowed at record levels, much more so than during the Great Financial Crisis (GFC). There were signs of frothiness and aggressive risk-taking in financial markets, as equity prices surged and housing markets boomed in many economies.

The large losses at several banks that had lent to Archegos put the spotlight on vulnerabilities in non-bank financial intermediation. This mainly reflected hidden leverage and liquidity mismatches.

Although a rise in house prices during a recession is not unprecedented, partly because accommodative monetary policy meant to stimulate the economy also supports asset prices, recent increases have been unusually large.

Rising house prices can contribute to a build-up of household vulnerabilities. As such, understanding why house prices rise is important when evaluating possible risks ahead.

Based on their historical relationship to rents and interest rates, house prices would have been expected to rise in many countries since the start of 2020, but in most cases by less than the actual increase observed.

Growth in rents - a key component in the cost of housing services - slowed in most countries over the past year. But mortgage interest rates and long-term bond yields - the relevant interest rates for discounting housing services - declined, at least until early 2021. This apparent divergence between house prices and their fundamental determinants could make them more vulnerable to larger corrections in the future, especially if financial conditions become less accommodative

2.38pm BST

US house prices have risen at their fastest rate in at least 30 years, as the surging housing market accelerates - leaving more families priced out.

U.S. home prices rose in April at fastest pace in 15 years - S&P/Case-Shiller https://t.co/Iy1iIbSF4a INVESTINGcom

At some point home prices are gonna cool off but S&P Case-Shiller says April prices rose 14.6% highest in 30 years of data. Phoenix, San Diego and Seattle all over 20%. SF Bay Area +15.1% from last year, a big pickup from March.

April's performance was truly extraordinary. The 14.6% gain in the National Composite is literally the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. Housing prices in all 20 cities rose; price gains in all 20 cities accelerated; price gains in all 20 cities were in the top quartile of historical performance. In 15 cities, price gains were in top decile. Five cities - Charlotte, Cleveland, Dallas, Denver, and Seattle - joined the National Composite in recording their all-time highest 12- month gains.

We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. April's data continue to be consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.

Sales activity is gaining dramatically on the higher end of the market but falling on the low end as more buyers are priced out. Some blame the Federal Reserve for keeping mortgage rates artificially low, through its bond-buying program. Record low rates last year helped juice the homebuying boom, but those rates, now slightly higher, cannot offset the huge price gains.

So much for the Fed's all-inclusive monetary policy where lower income people now can't afford housing," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Home prices surged in April at a 'truly extraordinary' 14.6%, S&P Case-Shiller says https://t.co/Tj8btG0Q9g

1.53pm BST

The US dollar is strengthening today against the pound and the euro, despite the robust economic data today from the UK and the eurozone.

Sterling has dropped by half a cent against the US dollar to $1.3822, its lowest level in just over a week, even though today's house price and consumer credit figures suggest the recovery remains solid.

We are finally getting a follow up dose of USD strength after the currency spent all of last week consolidating back to the weak side in the wake of the sharp surge from the FOMC meeting of the prior week.

The ability of the US dollar to even hold up reasonably well is interesting, given that the market continues to express solid conviction in the transitory inflation narrative. A huge jobs report Friday could challenge that development, even if we all know the wait for a verdict on the outlook extends out well over the horizon.

1.34pm BST

Inflation in Germany has eased, but remains above the official European Central Bank's target....and may head higher this summer.

Harmonised consumer price inflation in Europe's largest economy rose by 2.1% year-on-year in June, down from May's 2.4% - but above the ECB's goal of just below 2%.

- #German #inflation falls slightly to 2.3 percent in June

- In May, the rate of inflation had climbed to 2.5 %, its highest level since September 2011

- Experts assume that inflation will rise again in the coming months and reach 3 or 4 % https://t.co/UCu3JHGdt7

In July, the full base effects from the VAT reversal will show for the first time, probably pushing inflation to above 3%. A continuing surge in headline inflation together with what currently could be the most fertile breeding ground for second-round effects will further fuel the tapering debate.

Higher producer prices on the back of supply chain disruptions, higher commodity prices and the gradual reopening of the economy are all impacting consumer prices.

According to data from regional states, prices for household goods, services and hospitality services were the main drivers of headline inflation, with food prices and prices for leisure activities slightly taking off inflationary pressure in June. But don't be fooled by today's drop in headline inflation - there is more to come soon.

German inflation cools off but about to resurge soon | Snap | ING Think - The drop in German headline inflation masks another surge that we think is around the corner, adding to an increasingly heated debate at the ECB about... https://t.co/D8YlZyqQP3

1.20pm BST

Overseas business leaders will no longer need to quarantine when arriving in England if their trip is likely to be of significant economic benefit to the UK, the Government has announced.

Press Association's Simon Neville explains:

Company executives wishing to travel to England to make a financial investment in a UK-based business" or for establishing a new business within the UK" will be exempt but they will need written permission first.

The Department for Business said: This exemption is designed to enable activity that creates and preserves UK jobs and investment, while taking steps to ensure public health risks are minimised."

1.11pm BST

Shares in UK travel companies are lower again today, as rising Covid-19 cases threaten hopes for the summer.

British Airways parent company IAG are down 1.9% at 173p, the lowest since late February. Budget airlines easyJet (-1.5%) and Wizz Air (-2%) have both dropped.

Despite there being a number of positive factors contributing to a decent recovery in the UK, the travel and airline sectors have come under renewed pressure. The Delta variant remains a concern generally, and the UK government's reticence to open up the travelling floodgates has been mirrored by a reluctance from some countries to welcome UK visitors.

As such, and with the Longest Day heralding the onset of summer, it is increasingly difficult to foresee anything like the increase in holiday makers which the industry had been pining for over the season.

12.37pm BST

Speaking of private equity....Clayton, Dubilier & Rice has moved a step closer to its takeover of UDG Healthcare after raising its offer to 2.8bn and winning backing from big shareholders.

CD&R has increased its offer to 10.80 a share as signalled last week, after its earlier bid of 10.23 a share in May met opposition from some of UDG's largest investors. The UDG board has recommended that shareholders accept the offer, and said it had not received any rival buyout proposals.

12.35pm BST

Bridgepoint, the private equity group behind restaurant group Itsu, online cycling specialist Wiggle and the UK arm of Burger King, is planning to raise 300m with a stock market flotation in London.

The listing, expected to value Bridgepoint at up to 2bn in total, comes amid a surge in private equity deals partly prompted by a fall in asset values during the Covid-19 pandemic. Low interest rates have also led investors to pump money into private equity in search of better returns.

12.26pm BST

In the eurozone, confidence among businesses and households has risen sharply this month to a 21-year high, as economies emerged from lockdown.

The European Commission's economic sentiment indicator, which tracks business and consumer confidence, rose to 117.9 in June from 114.5 in May -- the highest reading since 2000, and above expectations.

The Eurozone economic sentiment indicator rose by 3.4 points from the previous month to 117.9 in June 2021, the highest since an all-time high of 118.2 was reached in May 2000 and well above its long-term average and pre-pandemic level. pic.twitter.com/PzCjes9CE7

Eurozone economic sentiment rises thanks to the re-opening and driven by services, while industry stalls, and retail still has room to improve. pic.twitter.com/6eTtyHKxL3

12.04pm BST

Oliver Gatland, economist at the CEBR, says the Bank of England's report shows consumers are driving a strong recovery from the economic shock of the pandemic.

However, if the lockdown is extended beyond 19 July, (due to the threat from the Delta variant), this rebound could falter, he points out:

Today's Money and Credit release provides further evidence of the strong rebound in consumer activity spurred by easing lockdown restrictions.

May's net borrowing position was the first since August 2020, and reflects the growing sentiment among consumers as the recovery from the crisis continues. Though the recent extension to lockdown restrictions may pose a threat to the heightened level of consumer activity, Cebr continues to forecast strong quarterly spending growth of 7.5% and 3.5% in Q2 and Q3, respectively."

May marked the third stage of the government's roadmap out of lockdown in England, under which various indoor activities were permitted to reopen. This provided new spending opportunities for consumers and encouraged a wave of activity.

The return to net borrowing also reflects growing levels of consumer confidence in May, with the YouGov/Cebr Consumer Confidence Index reaching 113.6, its joint-highest level since April 2016.

11.49am BST

The rise in consumer credit in May shows that old habits die hard, unless there's a lockdown in force", says Laith Khalaf, financial analyst at AJ Bell.

Borrowing is on the rise, and savings are falling back, as the lifting of social restrictions has prompted consumers to reach for their wallets. The data is from last month, and so straddles a significant lockdown easing date.

Since 17^th May, hospitality and leisure businesses have been in fuller swing, so we can expect spending trends to have accelerated since then.

11.25am BST

British consumers began borrowing again in May, as a jump in car financing deals and personal loans ended an eight-month run of people paying down their credit bills.

Consumer credit finally beginning to tick up, says Bank
Not credit cards, though. Wonder if likes of Klarna playing a part? pic.twitter.com/NtikhhyLNM

Mortgage approvals for house purchase in May remain high by historic standards. pic.twitter.com/aBK8VdSl97

10.31am BST

Back on house prices....Newsnight's Ben Chu has flagged up just how sharply they've risen in the last year:

NEW: UK average house prices up 13.4% year on year in June according to Nationwide - up from 10.4% in May & highest rate of growth since 2004...
https://t.co/LnHpwcSE1W pic.twitter.com/IL5fSevSoi

...last June the average house was sold for 216,403 - this June the average sale price was 245,432... pic.twitter.com/7peWYcKUws

...Last November the OBR was projecting house prices to fall by 3.5% this year and 2.6% in 2022... https://t.co/cJIuPWzs8e pic.twitter.com/8CogfJNNLx

...turning "Generation Rent into Generation Buy", as the Chancellor said he wanted to do in March, will prove ever more difficult if prices keep rising at this rate - even with his stamp duty cuts and mortgage guarantees https://t.co/sQ1fsmDdBS

10.30am BST

Ed Miliband wants government to commit to financing 3 new additional gigafactories and their supply chain by 2025 with an investment of up to 1.5bn

"That is an investment in our future, one of the best investments we can make" #SMMTSummit

Labour's shadow business secretary Ed Miliband is backing the call for more government support to help the car sector reach an electric future.

"My central message is that high ambition must be matched by high support from gov. for the industry, consumers & workers to navigate this transition. Public & private working together with a clear plan, an active industrial policy to help Britain win"@Ed_Miliband #SMMTSummit pic.twitter.com/7opsrnYFiZ

"I see this event as an opportunity to celebrate the industry but also as a call to arms. Because it is clear that we are at a crucial point in the future of the car industry"@Ed_Miliband #SMMTSummit pic.twitter.com/3cTPBeSqv0

"We have suggested a long-term interest-free loan scheme for new and second hand EVs to meet the up-front cost problem head on. Then as households recoup the savings from the lower running costs of the electric vehicles, they can pay the loan back"@Ed_Miliband #SMMTSummit pic.twitter.com/KY9Ckr6kF2

"We have said that the gov. should commit to part-financing the creation of 3 new, additional gigafactories by 2025, in addition to @BritishvoltUK, with an investment of 1.5bn. This investment would signal the UK's commitment to the industry that we mean business"#SMMTSummit pic.twitter.com/JIyuFhR6kg

While the costs for building zero emission vehicles are falling, this is not happening quickly enough for the industry to hit the 2030 target whilst retaining its global share and volume of production.

Unlike other major governments, the UK has yet to back its ambition with a matching level of investment in battery production incentives, charging networks and affordable clean energy. Independent analysts predict that by 2025, the UK will have just 12 GWh of lithium-ion battery capacity, compared to 164 GWh in Germany, 91 GWh in the US or 32 GWh in France.

@Ed_Miliband reminds Govt that UK EV battery investment critical to meet trade ROO thresholds by 2027. Also calls for consumer support to help purchase across all price points and questions how this Govt is assisting sector to install 700 public charge points/day #smmtsummit

Shadow business secretary @Ed_Miliband tells #SMMTSummit government must "step up far more actively."

Gov should spend 1.5bn to secure more battery factories, and should not cut the plug-in car grant.

Labour also wants interest-free loans to help families buy second hand EVs. pic.twitter.com/HrCpMHj3TZ

@Ed_Miliband has been running an EV (a Renault Zoe, he tells me) for a couple of months, which he describes as a "deeply informative research exercise".

Says the charging experience is "honestly mixed", and has sometimes spent "many long hours" trying to get the tech to work. pic.twitter.com/E4iRo7asmD

10.13am BST

SMMT CEO Mike Hawes has also warned that the UK's most important trade link remains with Europe, underlining the importance of a good relationship between the two.

While Australia (who agreed a free trade deal with the UK this month) is a sizeable market - it's nowhere as big as Europe, he told this morning's press conference:

Car industry annual conf
Mike Hawes" Head of car manufacturing body SMMT says trade agreements "should never be at the expense of existing neighbours and existing trade deals".
"Australia is a sizeable market. it's nowhere near as big as Europe but it's an important one. "

Also warns that 90,000 car industry jobs are at risk if government doesn't invest enough in electric engine manufacturing.
Says US and Germany investing way more. And unless govt steps up, the UK's biggest manufacturing sector will suffer hard

"The next ten years will decide the future of our industry," @MikeHawesSMMT tells the #SMMTSummit.

UK will have 12Gwh of battery plant by 2025, he says.
Germany = 164Gwh
US = 91Gwh

"With the wrong decisions we will become consumers, not producers; spectators, not innovators". pic.twitter.com/nhh4ObChyi

9.59am BST

Britain's car industry has warned that 90,000 jobs are at risk in the UK, many in areas the government is keen to level up', unless the country builds more battery factories to support the transition to electric vehicles.

These gigafactories' would give British manufacturers the capability to produce up to one million electric vehicles a year and ensure tariff free access to critical markets in the EU.

The next few years represent a critical period for the sector. The pace of technological change is accelerating and the competition more ferocious.

If we are to secure vehicle manufacturing in this country, with all the benefits to society that it brings, decisions need to be made today. The automotive sector is uniquely placed to help this government deliver on its agenda; to level up, deliver net zero and trade globally. The Government has made clear its support for the sector in its negotiations with Europe, so now is the time to go full throttle and take bold action to support one of Britain's most important industries."

Finally, to support market transition, the report calls for the installation of at least 2.3 million charging points nationwide before the end of the decade.

This would ensure all drivers - especially those without driveways - have the confidence to invest in the latest zero emission technologies, investment that will not just support a healthy domestic vehicle market, but which will underpin mass market automotive manufacturing in the UK and help deliver the country's climate change and air quality goals.

This would provide a significant impact in auto heartlands such as the North-East and West Midlands, directly helping level up' the UK.

Full throttle needed for UK automotive success

New report 'Full Throttle: Driving UK Automotive Competitiveness' explains how government can deliver manufacturing competitiveness in the transition to net-zero and help level-up'https://t.co/39m7i877BY pic.twitter.com/L5lSCLCaXM

If the industry fails to transition, we enter a downward spiral. But if we get it right, it is an upward spiral creating jobs and prosperity. Getting it right means government action matching ambition. Give us the tools - and we'll finish the job.https://t.co/OhLNwnYIZg pic.twitter.com/u7NPMrHjmD

9.44am BST

CC Capital Partners have announced that they don't plan to bid for IWG, following reports of talks between the two over a potential 4bn deal.

In a statement to the City, they say:

CC Capital Partners LLC (CC Capital") notes the recent press speculation regarding a potential offer for IWG PLC (IWG"). CC Capital confirms that it does not intend to make an offer for IWG.

CC Capital Partners confirms that it WON'T be bidding for #IWG

Attempts to stoke takeover interest in IWG dealt a blow...
CC Capital confirms it does not intend to make an offer pic.twitter.com/If0OoRWr7s

9.15am BST

Shares in IWG, the serviced offices operator, have jumped 7% this morning on reports that it is the latest UK company to attract the interest of private equity.

Sky News reported last night that IWG, formerly called Regus, had held talks with CC Capital about a possible bid.

IWG, the world's largest serviced office group and rival to WeWork, has been in secret talks about a potential takeover offer that could value the company at more than 4bn.

Sky News has learnt that CC Capital, a New York-based private equity firm, has held discussions with Regus-owner IWG about a prospective bid in the last month.

Exclusive: IWG, the London-listed owner of Regus and rival to WeWork, has been in secret talks in the last month about a potential 4bn takeover bid from CC Capital, a New York-based private equity firm. It's not clear whether the talks are still ongoing. https://t.co/OkPnnMdSLM

Bid chatter pushed up shares in serviced officer provider IWG, best known for its Regus brand.

Rumours suggest interest from private equity, coming at a time when many companies are deciding they want more flexibility with where their staff work, and so serviced office space is one alternative to owning office blocks that may no longer be fully occupied."

9.00am BST

In the City, the FTSE 100 index has risen 25 points in early trading to 7089, up 0.35% - recovering some of yesterday's 63-point drop.

Online grocery technology firm Ocado are the top riser (+2.4%), followed by housebuilder Persimmon (+2.3%) and Barclays bank (+2.4%).

8.42am BST

UK house prices are also being propped up by low supply of properties on the market.

Jonathan Hopper, CEO of Garrington Property Finders, says the surge in prices is exacerbating this problem -- people are worried about putting their home on the market and getting offers, without having secured somewhere to move to.

Recent months have seen particularly strong price growth - prices are up almost 5% since March.

And yet this may prove the high tide mark for the exceptional inflation seen over the past year. With the Stamp Duty holiday due to start tapering away from this Thursday, buyers are likely to become less frantic in their desire to complete purchases as quickly as possible.

8.19am BST

Martin Beck, senior economic advisor to the EY ITEM Club, argues that house prices could well keep rising, even once the stamp duty holiday ends.

Beck says a cocktail of forces" have propelled demand, including the extension of the stamp duty holiday, low borrowing costs, the substantial savings' built up by some families in the lockdown, and the fact that older, higher-paid workers were less affected by pandemic job losses.

8.08am BST

Guy Harrington, CEO of residential lender Glenhawk, fears the UK housing market is heading for a correction:

This is only going to end one way. Given the economic backdrop and with government support schemes ending in a few months, this insane level of growth is long overdue a correction.

In some rural hotspots houses are selling for 40% over the asking price. The UK housing market has a rocket attached that is burning low on fuel and once this perfect storm passes, we are headed for a serious shock to the system."

8.02am BST

The surge in UK house prices makes it harder and harder for first time buyers to find the deposit they need to get onto the housing ladder.

That's because prices are rising much faster than wages, as this chart shows, meaning that typical 10% deposit required by lenders is swelling too.

Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows - in fact, on this measure affordability remains broadly in line with its long run average.

However, house prices are close to a record high relative to average incomes. This is important because it makes it even harder for prospective first time buyers to raise a deposit. For example, a 10% deposit is over 50% of typical first time buyer's income. A potential buyer earning the average wage and saving 15% of take home pay would now take five years to raise a 10% deposit.

7.42am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

UK house price inflation has hit its highest level since 2004, in the last scramble to take advantage of the full stamp duty holiday.

While the strength is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum.

Indeed, June saw the third consecutive month-on-month rise (0.7%), after taking account of seasonal effects. Prices in June were almost 5% higher than in March.

Underlying demand is likely to remain solid in the near term as the economy unlocks. Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee.

Activity will almost inevitably soften for a period after the stamp duty holiday expires at the end of September, given the strong incentive for people to bring forward their purchases to avoid the additional tax.

Northern Ireland was the strongest performing region, with prices up 14% year-on-year, the highest rate of growth since 2007. Wales also saw a significant acceleration in annual house price growth to 13.4%, the largest rise since 2005.

But conditions were more muted in Scotland, which saw a modest increase in annual growth to 7.1% (from 6.9% last quarter) and was also the weakest performing part of the UK. This may reflect that the stamp duty (LBTT) holiday in Scotland ended on 31 March.

Source	RSS or Atom Feed
Feed Location	http://feeds.theguardian.com/theguardian/business/economics/rss
Feed Title
Feed Link	http://feeds.theguardian.com/