By Jack Barnett
House price growth is poised to stutter, new figures out this week are expected to show, as prospective homeowners are gradually priced out of the market by the Bank of England’s successive interest rate rises.
Numbers from Britain’s largest mortgage lender Halifax on Wednesday are set to show house prices grew around 0.6 per cent over the year to May, down from a growth rate of 1.6 per cent in the previous month.
Over the month to May, prices are tipped by consultancy Oxford Economics to have stalled completely, signalling the Bank’s efforts to cool the UK economy to grip price pressures are taking effect.
Inflation is proving much tougher to eradicate than experts expected. Numbers from the Office for National Statistics last month revealed the rate of price increases slimmed to 8.7 per cent from 10.1 per cent, a much smaller drop than forecast.
Core inflation, however, jumped from 6.2 per cent to 6.8 per cent.
Bank Governor Andrew and co have jacked up borrowing costs twelve times in a row to 4.5 per cent and financial markets expect the Bank to send them to 5.5 per cent. Those upward moves have raised mortgage rates, forcing more potential buyers to park their home-ownership dreams for the time being.
Research from the Royal Institute of Chartered Surveyors on Thursday is anticipated to show higher mortgage costs are squeezing demand in the housing market.
Separate PMI data from S&P Global and the Chartered Institute of Procurement and Supply tomorrow could crystalise market bets on the Bank continuing to raise interest rates.
The final purchasing managers’ indexes will alarm economists at Threadneedle Street if it confirms that strong wage inflation is contributing to service providers seeing the fastest rise in their cost burdens for three months, analysts at Oxford Economics said.
“A similar outcome in the final survey for May would further increase the likelihood of the MPC going for another rise in interest rates when it meets later this month,” they added.
The services PMI is tipped to stay far above the 50 point growth threshold at 55.1. Manufacturing output is lagging far behind services activity, mainly due to the sector being more sensitive to interest rate changes and weak international demand.
Pound sterling last week was on track to clock its best week against the US dollar in around six months, strengthening about 1.5 per cent, driven by investors hiking their peak Bank of England interest rate expectations, though that run lost steam on Friday.
London’s FTSE 100 fared okay, adding around half a percentage point last week to finish at 7,607.29 points. The mid-cap FTSE 250 pumped up 1.71 per cent to 19,149.31 points.
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