Housing price slowdown in Q1 2019

The Halifax survey of British house price growth shows a slowdown in the first quarter of 2019 in annual terms and a subdued outlook, according to Reuters.

Uncertainty about Brexit and high property prices were cited as key factors behind the trend. Compared to the same period in 2018, prices rose by 2.6% whereas the three months to February showed a 2.8% rise.

A Reuters poll of economists indicated an annual rise of 2.3% could be expected for the first quarter. A recent Nationwide mortgage lender survey found house prices had increased somewhat.

The housing market in London is particularly weak, with Brexit uncertainty poised to have a particularly strong impact in the capital. Shortly before the 2016 referendum house prices were rising by around 10% per year.

Halifax says that in March, in monthly terms prices were falling by 1.6% after a 6.0% increase in February. Halifax’s index has tended to show a more marked variance than other polls in recent times.

UK consumers rising despite Brexit fears

January saw increased borrowing by British households, indicating that private individuals in the UK have more confidence in the economy than businesses, according to Reuters.

The month saw the largest number of mortgages approved for house purchase than any forecast in a Reuters poll of economists, reaching 66,766 in January. In December the figure was 64,468.

In the same period, consumer borrowing increased almost £1.1bn, also exceeding the predictions of the Reuters poll.

The annual growth rate in unsecured consumer lending was reduced to 6.5%, the weakest level in four years, according to figures from the Bank of England.

The economy of the UK has slowed sharply in anticipation of Brexit, which is officially scheduled to occur at the end of March. UK Prime Minister Theresa May recently opened the way for a delay to this leaving date, subject to approval from parliament.

The UK manufacturing sector slowed in February, according to a recent survey.

No deal Brexit could push UK house prices down 3%

A Reuters poll has revealed that Brexit is likely to result in a modest change in UK house prices, with London properties being impacted to a greater degree.

A no-deal Brexit would likely result in a 3 per cent decrease in London house prices over 6 months, while national property values would drop by 1 per cent. The survey was carried out between 13-20 February 2019.

Tony Williams of property consultancy Building Value said: “There will be a palpable shock to the UK economy in terms of GDP, inflation, job creation etc.

“This will spill over dramatically to the residential market, with London bearing the brunt given the international catchment of prospective buyers.”

Williams predicted that London property prices would fall 10% in the event of a no-deal Brexit.

However, a dramatic Brexit could see the value of Sterling fall 5-10 per cent, which would make investment more attractive to overseas buyers and offset some of the market problems.

Another poll said UK property prices would rise 1.5% in 2019 and 1.8% in 2020, a fall from earlier predictions. In London, property prices are predicted to fall 2.0% in 2019.

UK austerity could last years more, says IFS

Public services in the UK may face a financial squeeze for years to come according to the Institute for Fiscal Studies (IFS), as reported by Reuters.

Finance minister Philip Hammond has indicated a softer fiscal stance toward managing the economy, but the think tank has cast doubt on the ability to ease austerity policies in the near term.

Hammond’s half-yearly budget update is due to be revealed on 3 March, with details of the money available for public spending. The UK is due to leave the European Union two weeks later, but the terms of the departure are still unclear.

The October annual budget showed Hammond giving more support to the economy, with higher spending levels. However, spending more on healthcare has left little to spare for other public services.

IFS research economist Ben Zaranko said: “This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years.”

Outside of health, defence and overseas aid, departments saw spending levels fall by an average of 3% per year in real terms after 2010. The outlook is for 0.4% annual falls in spending in inflation-adjusted spending, according to the IFS.

A statement from the finance ministry said: “The (finance minister) has said that hte Spending Review will take place in 2019, and that is the right moment for government to make long term funding decisions.

“Outside the (health service), total day to day departmental spending is now set to grow in line with inflation, and public investment will reach levels not sustained in 40 years in this parliament.”

Survey reveals little appetite for UK investment

The appetite for financial risk among British businesses has fallen to its lowest level in a decade, according to a survey by accountancy firm Deloitte reported by Reuters.

The survey indicated that investors are deterred by fear of a hard Brexit and increasing US protectionism.

The UK is less than eight weeks away from the supposed date of an exit from the European Union, but the terms on which the exit will take place remain unclear after a transition deal brokered by the Prime Minister was rejected by the House of Commons.

Without a deal, Brexit may proceed without transition arrangements, which leads many to fear severe problems with supply chains and delays at ports.

Deloitte chief economist Ian Stewart said: “Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control.”

Another survey, issued by the Institute of Chartered Accountants in England and Wales (ICAEW) showed a similar sentiment, indicating Q1 growth of just 0.1 percent, the joint-weakest since 2012.

The Deloitte survey found that 78% of the 100 companies taking part said they feared Brexit would damage the economy in the long term, whereas only 10% expected a improvement.

Businesses ask politicians to ‘get a grip on Brexit’

Businesses have asked UK politicians to ‘get a grip on Brexit’, amid continued uncertainty over the future relationship with the European Union, according to Reuters.

Businesses are stepping up preparations for the event of a no-deal exit while some large companies are setting up emergency rooms to deal with the chaos of leaving without adequate trade provisions.

By law the UK is due to leave the EU on 29 March 2019, but there is as yet no agreement on the terms of leaving will be. In a parliamentary vote, MPs rejected the withdrawal agreement negotiated by Prime Minister Theresa May.

Leaving the EU without a deal could result in ports facing significant delays, damage to supply chains and shockwaves in financial markets.

The UK shipping industry’s representative body, the UK Chamber of Shipping, said through chief executive Bob Sanguinetti: “We need to put aside party politics and in the moment of need that we find ourselves in, we need to look at the bigger picture and look at what’s best for the country.”

James Stewart, head of Brexit at KPMG, said: “may of the businesses we’re speaking to are praying for an extension to Article 50. Nearly all larger firms are now preparing for Brexit, after some came late to the party – however the timing of no-deal implementation planning remains highly variable.”

Possible resolutions to the crisis include a no-deal Brexit, a last-minute agreement on an amended deal, a delay, a fresh general election or a referendum re-opening the question of Brexit altogether.

Sony to move European HQ out of UK

The headquarters of electronics giant Sony is to move from the UK to the Netherlands to avoid Brexit-related disruption, according to BBC News.

The company said the move would help to avoid customs issues connected to the UK’s exit from the European Union. The company will not move personnel or operations from existing UK sites, despite the change in official HQ.

The move is the latest in a series of signals from Japanese companies that there is serious concern about the impact of Brexit on trading conditions in the UK.

Japanese Prime Minister Shinzo Abe expressed concern about Brexit on a recent visit to the UK, saying it could hurt the Japanese companies that employ 150,000 people within the country.

Panasonic recently announced a similar move in HQ, but confirmed this would impact fewer than 10 of its 30 employees in the UK HQ.

Sony spokesperson Takashi Iida said the move would mean only common customs procedures would be required for Sony’s European operations following Brexit.

Japanese firms MUFG, Nomura Holdings, Daiwa Securities and Sumitomo Mitsui Financial Group have also said they plan to move their European headquarters away from the UK to set up in mainland Europe.

Carmakers Toyota and Honda have also announced plans to freeze investment or operations in the UK due to Brexit.

JD Wetherspoon Plc warns of low pretax profits

British pub chain JD Wetherspoon Plc has warned of low pretax profits in the first half of its fiscal year, according to Reuters.

The chain has been fighting against higher costs as a rise in the minimum wage rate, growth in property prices and a Brexit-related fall in the strength of the pound have combined to make trade challenging. There is also a trend towards young people in the UK drinking less alcohol.

In November the chain said it would be raising pay for employees, as well as adjusting prices to allow for a new sugar tax on soft drinks.

Chief Executive Tim Martin said: “Costs, as previously indicated, are considerably higher than the previous year, especially labour, which has increased by about 30 million pounds in the period.”

JD Wetherspoon has over 900 pubs in Britain and Ireland, with plans to open a further 5 to 10 sites in this financial year.

The chain said despite the lower profits, like-for-like sales rose 7.2% in the 12 weeks to 20 January 2019, showing there was strong demand in the Christmas period. Rival Marstons Plc reported a 5.7% rise in its Christmas sales for the 16 week period leading to 19 January.

Barnier rejects UK Brexit customs proposals

EU chief negotiator Michel Barnier has rejected the idea of the UK collecting customs duties on behalf of the trading block, according to BBC News.

Barnier confirmed that the EU would not delegate “excises duty collection to a non-member”, noting that the EU wished to retain control of its money, law and borders just as much as the UK.

Barnier and UK Brexit Secretary Dominic Raab agreed that progress has been made in talks but that “obstacles” remained to achieving a deal by October.

Raab said: “We have agreed to meet again in mid-August and then to continue weekly discussions to clear away all the obstacles that line our path, to a strong deal in October – one that works for both sides.

The concept of the UK collecting duties on behalf of the EU had been a prominent feature of UK proposals for post-Brexit trading arrangements, a Facilitated Customs Arrangement. The system would see the UK collecting tariffs for the EU in a bid to ensure frictionless trade.

Barnier said the white paper put forward by the UK government was a “real step forward” but that “we are not at the end of the road yet.”

Mark Carney criticises protectionist trend

Bank of England Governor Mark Carney has spoken out against the ‘low road’ of protectionism, saying the trend would cost jobs and growth, according to Bloomberg.

Carney said signs of strain were beginning to show on the world economy as a result of trade barriers.

The Governor said: “We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalisation of global trade in services.”

“The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalization.”

Carney said the impact of US tariffs imposed in June was likely to be small, but a larger increase “would have a substantial impact” including indirect effects on the economy through reduced business confidence and poorer financial conditions.

Carney said he believed interest rates would, in the long run, return to pre-financial crash averages. This means around 5% in the UK, ten times the current level. However “a lot of things have to go right for that to be the case.”

The Bank of England head also said that in the event of a no-deal Brexit, banks would probably face a ‘disorderly Brexit stress test’ in March 2019.