Market Report - 05/01/2024
House prices rise in the UK ; Non Farm Payrolls beats expectations
Halifax revealed this morning that house prices in the UK rose for the third consecutive month in December, reflecting a shortage of properties on the market.
Their statement added that with mortgage rates now beginning to ease, confidence among buyers may is starting to return – the average home rose by 1.1% to £287,105, just over £3,000 more than in November and the highest level since March. Despite this, mortgage costs are still much higher than they have been in recent years after the Bank of England raised interest rates to 5.25% to fight stubbornly high inflation.
Sir Howard Davies, the NatWest Chairman has suggested that the UK could see a “rather slow reduction in interest rates” this year because “wage expectations are quite high”. He suggests that the Bank of England was criticised for being slow to raise interest rates when inflation shot up mainly due to higher energy and food prices, policymakers will be careful when they reduce borrowing costs.
Elsewhere in the UK, the construction sector showed signs in December that it might have seen the worst of a slump caused by the steep climb in interest rates. The construction PMI index rose to 46.8 from November's 45.5 but remained below the 50.0 growth threshold for a fourth month in a row, suggesting that companies in the sector remained concerned for the UK economies health and outlook, with 17% of the companies who took place in the survey forecasted a decline in sector activity for 2024.
UK Consumer credit showed that individuals’ borrowing rose to £2b in November, higher than a year ago at £1.4bn.
EUR
In the Eurozone inflation has risen again to 2.9% and could even move higher again over the following months. The rise to 2.9% in December from November’s two-year low of 2.4% can be attributed to a reduction of government subsidies on gas, electricity and food. This news now makes the chances of an early interest rate cut from the ECB even more unlikely. The ECB are meeting next on 25th January to discuss monetary policy, they had stated in their last meeting that they required wage pressures to cool to ensure inflation is on track to fall to their 2% inflation target.
USD
The pound rose towards the 1.2700 level ahead of US payroll data, In the US, the Non Farm Payrolls release has shown that the economy added 216,000 jobs last month, which more than forecasted (the November and October increases were revised lower). Economists had expected an increase between 150,000 and 170,000. November’s rise was revised to 173,000 from 199,000 while the October figure was also revised lower, to 105,000 from 150,000. The unemployment rate stayed at 3.7%.