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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK house prices hit record high but slowdown looms; eurozone bond yields rise – as it happened

United Kingdom United States eurozone (Location) eurozone ECB Christine Lagarde Halifax (Organization) European Union Bank of England London
A row of To Let estate agent signs.
A row of To Let estate agent signs. Photograph: Yui Mok/PA

Closing summary

Time to wrap up. Here’s the main stories

US house price growth is set to slow substantially, experts say, as the cost of living squeeze hits household budgets.

Mortgage lender Halifax reported that average prices hit a new record of £276,759 in January, but monthly growth slowed to 0.3%. Higher inflation, and rising borrowing costs, are likely to cool the market this year.

European Central Bank president Christine Lagarde has tried to calm concerns that inflation could force the ECB to tighten monetary policy sharply. She told MEPs that the chances have increased that inflation will stabilize at its 2% target, despite hitting its higher level since the euro came in.

Lagarde’s comments came after eurozone bond yields rose, with the gap between Italy and Germany’s borrowing costs hitting its highest since summer 2020.

Supermarket chain Asda has committed to making its cheapest food ranges more widely available, after the anti-poverty campaigner Jack Monroe raised concerns that low-income shoppers were facing price increases because they could no longer get hold of them.

Unions have urged the government to do more to help low-paid workers weather the cost of living crisis, after research found the number claiming universal credit has more than doubled since the start of the pandemic to at least 2.3 million.

The founder of Cobra Beer has warned that drinkers are going to have to pay more for their pints because the industry faces a “vicious cycle” of surging costs.

Two FTSE 350 firms have appointed new CEOs today, and they’re both women.

Pets At Home has appointed Sky UK executive Lyssa McGowan as its first female chief executive, while housebuilder Taylor Wimpey has promoted group operations director Jennie Daly to be its CEO, despite pressure from activist investor Elliott for an external hire.

The mutual insurer LV= has launched a boardroom clear-out following the high-profile failure of its management to sell the company to a US private equity firm last year.

European stock markets have closed higher, with travel stocks boosted by signs that Covid-19 case rates are falling in some countries.

Investor morale in the eurozone has risen....but German industrial production dipped in December as construction output dropped.

And fans of plant milk can now buy potato milk at Waitrose this week:

Goodnight. GW

Some highlights from the Treasury Committee’s hearing on inflation, and the Bank of England today, from my colleague Richard Partington...:

..and Arthi Nachiappan of The Times:

Global supply chain problems have forced investment group abrdn to delay an investor vote on its £1.5 billion takeover of Interactive Investor.... because it couldn’t get hold of enough paper.

Abrdn faced problems securing enough paper to post a circular to its more than a million shareholders before their vote on its planned purchase of ii, the do-it-yourself investment platform.

The paperwork should be dispatched this week, which is about two weeks later than planned.

The former owner of Norton Motorcycles faces up to two years in prison after pleading guilty to illegally investing millions of pounds of people’s retirement savings into his own businesses.

Stuart Garner, who acquired the classic marque in 2008 and was feted by a series of UK government ministers including the MP Stephen Barclay, the prime minister’s new chief of staff since Saturday, admitted three offences at Derby magistrates court on Monday.

Garner will be sentenced at the end of the month, when he faces a maximum of two years in prison or an unlimited fine.

The admission comes after pension holders had been complaining for years that the businessman had repeatedly ignored their requests to return their retirement savings. It also follows a 2020 Guardian and ITV News investigation that showed how more than 200 “ordinary working people” had had their entire pension pots invested into Norton shares.

Here’s the full story:

Travel stocks are rallying in the US today, as in Europe, on signs that Covid-19 infections could be slowing in some countries.

Norwegian Cruise Line Holdings, Royal Caribbean Cruises and Carnival Corp are all up around 8% in New York, where American Airlines is up 4% and aircraft manufacturer Boeing is 2.8% higher.

The rally comes as Covid-19 case rates slow in the US and parts of Europe, after a grim winter of record infections.

New cases per day in the US have plunged by almost half since mid-January. But the death toll from Covid-19 is stark - hitting 900,000 last Friday, less than two months after eclipsing 800,000.

Crypto currencies are pushing higher tonight, with bitcoin now up 9% at a four-week high of $44,362, and Ether touching three-week high.

Bitcoin had sunk to a six-month low in late January, in the wider selloff in speculative assets, but has now seeing a pick-up.

Craig Erlam of OANDA says:

Bitcoin hasn’t only weathered the recent storm, it’s managed to rally through a key resistance level and generate some decent upside momentum as well.

It’s been a mixed week for risk assets but bitcoin is finding some form and the break of $40,000 could be key to it continuing to build on that. We’ve seen what bitcoin can do once it gets moving and while it’s still early days, there’s certainly reason to think the worst may be behind it. The next big test is $45,000.

Eurozone bond yields have slipped back somewhat from their earlier highs, after Christine Lagarde pushed back against worries that the ECB could tighten policy aggressively to tame inflation.

ING’s Carsten Brzeski writes that Lagarde has tried to cork the ‘hawkish genie’ that triggered today’s selloff in bonds.

At today’s hearing at the European Parliament, Lagarde mainly repeated the main messages of Thursday’s ECB meeting but subtly pushed back on overly aggressive rate hike expectations. She stressed that any policy adjustment “will be very gradual” and that there were no signals that “inflation will be persistently and significantly above our target over the medium term, which would require measurable tightening.”

Also, she said that the ECB was determined to use all tools necessary to ensure an equal transmission of its policy to all member states. While these comments leave some open questions, like how to combine the end of asset purchases with still narrow bond yield spreads, it is clear that Lagarde’s mission today was to put the hawkish genie back into the bottle. Normalisation does not mean tightening.

European stock markets close higher

Europe’s stock markets have closed mostly higher tonight, although shares in Italy and Spain were dragged back by concerns over rising government bond yields.

In the City, the FTSE 100 index gained 57 points to close at 7573, up 0.75% today.

Financial stocks, miners, betting firms and travel companies gained ground, with Flutter up 5%, and airline group IAG gaining 3.8%, and Barclays, Lloyds and HSBC gaining over 2% each.

Property companies, supermarket chains and utilities dipped, though.

Germany’s DAX gained 0.7%, with France’s CAC 0.8% higher.

David Madden, analyst at Equiti Capital, says:

Traders are cautiously optimistic this afternoon and in turn we are seeing a rally in stocks. European benchmarks are outperforming their US counterparts even though tensions between Russia and Ukraine haven’t been resolved. The international community is taking the issue very seriously, the UK announced it is sending troops to Poland.

Despite the political standoff, stock markets in continental Europe are showing impressive gains as the DAX and the CAC are both up almost 1%. It is remarkable the German index is holding up so well when you consider it is heavily dependent on energy supplies from Russia, so a war in that part of the world could spark an energy crisis. The FTSE 100 is firmly in positive territory as banking, oil and mining stocks are assisting the market.

However, Italy’s FTSE MIB lost 1%, and Spain’s IBEX slipped by 0.36%, as those rising peripheral eurozone bond yields caught traders’ attention.

Updated

Lagarde: Eurozone inflation may subside before becoming entrenched

European Central Bank president Christine Lagarde has told the European Parliament that price pressures in the eurozone could subside before they become entrenched in people’s expectations.

Testifying to the EP’s committee on Economic and Monetary Affairs, Lagarde said that eurozone inflation risks are on the rise.

But, she also argued that inflation can stabilise around the ECB’s target of 2%, meaning no need for major tightening.

Downplaying concerns about rising inflation, Lagarde told MEPs that:

“We have to bear in mind that demand conditions in the euro area do not show the same signs of overheating that can be observed in other major economies,”

“This increases the likelihood that the current price pressures will subside before becoming entrenched, enabling us to deliver on our 2% target over the medium term.”

“The chances have increased that inflation will stabilize at our target. There are no signals that inflation will be persistently and significantly above our target over the medium term, which would require measurable tightening,”

Higher energy costs pushed eurozone inflation to its record rate of 5.1% in January.

Those higher bills will leave households with less to spend on other products and services, which could drag on prices in future.

Investors are now keen to hear the ECB’s next economic projections, in March, with the possibility of early interest rate rises pushing up bond yields this afternoon.

Asda puts value ranges in all stores after Jack Monroe pressure

Supermarket chain Asda has committed to making its cheapest food ranges more widely available, following warnings that the poorest families were being priced out of buying food.

Asda announced it will stock its full Smart Price and Farm Stores ranges in all its 581 food stores, and online, to provide customers on a budget with more value choices.

The supermarket currently stocks 150 Smart Price and Farm Stores products in 300 stores and will introduce all 200 products in these value ranges to all food stores by 1st March.

The move was prompted by anti-poverty campaigner Jack Monroe, who has highlighted that value ranges were “stealthily being extinguished” from the shelves of supermarkets, forcing shoppers to “level up” to the supermarkets’ own branded goods, or go hungry.

Meg Farren, Asda’s chief customer officer, says:

“We want to help our customers’ budgets stretch further and have taken on board the comments about the availability of our Smart Price range made by Jack Monroe.

“We are taking steps to put our full Smart Price and Farm Stores ranges in store and online to make these products as accessible as possible.”

Monroe is also developing a new poverty index that will track the cost of living for basic products.

Updated

Eurozone bond yields lifted by interest rate rise expectations

Many government bond yields are rising today as investors sell sovereign debt, as they deduce that interest rates are going to rise quicker than previously thought.

The move has pushed borrowing costs for southern eurozone governments back towards their pre-pandemic highs, as investors adjust to signs that the European Central Bank could raise interest rates as soon as this year.

Inflation is sharply over target in the US (where it hit a 40-year high of 7% in December), the UK (5.4%, a 3o-year high) and the eurozone (5.1% in January, the highest since the single currency began).

Central banks in all three areas are now expected to tighten policy faster than thought a few weeks ago, (through unwinding their government bond purchase schemes and raising interest rates).

America’s Federal Reserve is expected to raise interest rates at least five times this year, following Friday’s strong jobs report.

Four of the Bank of England’s nine rate-setters wanted a bigger interest rate rise last week (to 0.75%, not the 0.5% rise we saw), as they tried to squeeze inflationary expectations.

Klaas Knot, the Dutch central bank head, fuelled speculation that eurozone borrowing costs would rise this year, when he predicted the European Central Bank would raise interest rates in the fourth quarter of this year.

Global bond yields
Global bond yields Photograph: Think Markets

This selloff has pushed Greek 10-year bond yields up, hitting their highest levels since April 2020 (although they’re still much lower than in the eurozone crisis a decade ago, when 7% was the ‘danger zone’).

And the yield on Italian bonds, vs safe-haven German debt, has risen to its highest level since summer 2020.

The spread between Italian and German government bonds
The spread between Italian and German government bonds Photograph: Think Markets

Fawad Razaqzada, analyst at Think Markets, explains what’s behind the moves:

The Bank of England and European Central Bank were more hawkish than expected, with a bigger split in the former in deciding how much to raise rates by.

In the US, the much stronger non-farm payrolls report, plus more signs of rising inflationary pressures, cemented expectations of a faster rate hiking cycle over there. While yields have extended their gains, the equity markets have started the new week on a stronger footing – except in some peripheral European countries.

The bond selling has been more profound for European peripheries, with Greek and Italian yields sharply widening their gaps against German bunds.

This is because peripheral Europe has been the major beneficiary from ECB’s emergency stimulus measures. With investors now pricing in a faster removal of QE by the ECB, they are taking no chances. The Italian benchmark stock index was down around 1.5% today, sharply under-performing the likes of the UK’s FTSE and the German DAX indices.

Updated

Shares in exercise equipment maker Peloton have surged 22%, following reports late last week that Amazon and Nike are both evaluating possible bids for the company, whose pandemic-fuelled growth has slowed.

Wall Street has opened slightly higher, with the S&P 500 index gaining 0.3%, or 12 points, to 4,513 in early trading.

The Dow Jones industrial average of 30 large US stocks is flat, with communications group Verizon (-1.3%) insurance group Travelers Companies (-1.1%) and chemicals firm Dow Inc (-1%) in the fallers.

Tech stocks are picking up, though, lifting the Nasdaq Composite by 0.9%.

Back in the City, the FTSE 100 index has pushed higher - now up 51 points or 0.7% at 7567.

Gambling groups Flutter (+4.3%) and Entain (+2.4%) are in the top risers, along with insurance group Prudential (+2.75%), miner Anglo American (+2.4%), Lloyds Banking Group (+2.4%) and airline IAG (+2.3%).

But Italy’s FTSE MIB share index is having a choppy day, down 1.3% as the sell-off in European government bonds worries traders.

As flagged earlier, 10-year Italian yields have risen sharply for a third straight session, sending the spread against safer German bonds to the widest since August 2020.

Deal news. Low-cost US airlines Frontier and Spirit have agreed to merge, creating what would become the fifth-largest airline in the country.

The $6.6bn deal will bring the two largest low-cost carriers in the U.S. together, with Denver-based Frontier Airlines holding a 51.5% controlling stake in the combined airline.

Frontier and Spirit said the combination will create America’s “most competitive ultra-low fare airline”, and better challenge with the “Big Four” airlines — American, Delta, Southwest and United.

Today’s eurozone government bond selloff has also widened the gap between German and Italian sovereign debt....

Updated

The logo of Swiss bank Credit Suisse in Zurich

Over in Switzerland, Credit Suisse is facing charges in a Swiss court of allowing an alleged Bulgarian cocaine trafficking gang to launder millions of euros, which the bank denies.

Associated Press have the details:

A Swiss criminal court was opening a trial Monday on charges that Credit Suisse failed to do enough to stop money laundering linked to drug trafficking by a Bulgarian criminal organization, which employed a wrestler who once hauled millions in currency by car to Switzerland.

The case against the bank in federal criminal court, in the southern city of Bellinzona, centers on charges that it “did not take all necessary measures to halt the infraction of money laundering” by one of its employees, according to a summary from the court announcing the start to the proceedings.

As per Swiss criminal court cases, the defendants — both individual and corporate — were not named to protect their privacy. But Swiss prosecutors identified Credit Suisse by name in an indictment announced in December 2020.

The indictment, which centered on a former manager at the Swiss bank and two members of the criminal ring, wrapped up a yearslong investigation into allegations of wrongdoing that appears mostly to have taken place between 2004 and 2008.

“Credit Suisse unreservedly rejects as meritless all allegations in this legacy matter raised against it and is convinced that its former employee is innocent,” the Swiss bank said in a statement Monday, adding that it “will defend itself vigorously in court.”

More here: Credit Suisse faces trial in drug-tied money laundering case

UK beer prices pushed up by ‘vicious cycle’ of costs, says Cobra founder

Beer lovers are going to have to pay more for their pints because the drink industry faces a “vicious cycle” of surging costs, the founder of Cobra Beer warned this morning.

Lord Bilimoria, who has turned Cobra into a household name since founding the brand in 1989, said soaring costs across the supply chain, from manufacturing and energy to freight and staffing, meant prices would have to rise.

“Our input costs in every way – bottling, energy – are up,” he told BBC Radio5 Live’s Wake Up To Money programme.

“Freight costs have soared, sometimes 10 times. Wages are increasing and on top of that there are labour shortages. It does mean that businesses have to put up prices. But the consumer is already feeling the squeeze. It is a really challenging situation for everyone.”

You can listen in here:

Eurozone bond yields jump amid ECB tightening fears

European bond yields have jumped today after the European Central Bank last week sparked speculation that it could tighten monetary policy as soon as March.

Yesterday, Klaas Knot, the Dutch Central Bank President and a member of the ECB’s governing council, said he expects the European Central Bank to raise interest rates in the fourth quarter of this year.

Bond yields rise when prices fall, and today’s sharp moves suggest investors are anticipating the ECB could slow its bond-buying stimulus programmes faster than previously expected.

Reuters has the details:

Markets are on alert for rate rises in both the euro zone and the United States after the ECB last week was considered to have adopted a more hawkish tone. The United States reported stronger than expected jobs and earnings data.

“The most dominant thing is still central banks and the tightening we see there, that has led to the volatility,” said Matthias Scheiber, global head of portfolio management at Allspring Global Investments.

German 10-year government bond yields hit three-year highs and Italian 10-year yields hit their highest since May 2020, with Italy seen particularly vulnerable to rate increases due to its high levels of debt.

ECB President Christine Lagarde could try to appease rate hike jitters at her testimony before the European Parliament later today (15:45 GMT).

Last Thursday, Lagarde said eurozone inflation was likely to remain elevated for longer than previously expected, and didn’t repeat her previous guidance that an interest rate increase this year was “very unlikely”.

Updated

In the consumer world, the potato is taking on soya, nut and oat in the plant milk market.

My colleague Zoe Wood explains all:

Described as “deliciously creamy” and capable of producing the “perfect foam” for a homemade latte or cappuccino, the Swedish potato milk brand Dug goes on sale in 220 Waitrose stores this week.

Sales of plant-based alternatives to milk are booming in the UK with the market now worth about £400m a year as Britons reduce their consumption of animal products.

In recent years the buzz has been around oat milk, thanks to the success of rival Swedish brand Oatly, but in its recent food and drink report Waitrose predicted that in 2022 it would be “the turn of the potato”.

Waitrose said that in 2021 its sales of plant-based milk were almost a fifth higher than in 2019 as alt-dairy entered the mainstream. Oat milk is the current bestseller, ahead of almond, soya and coconut, it said.

Waitrose’s alternative milk buyer, Alice Shrubsall, said sales of the products had “gone from strength-to-strength over the past few years” adding: “Demand hasn’t slowed in this market and we’re seeing customers become more experimental with their alternative milk choices.”

Emma Källqvist, the acting chief executive of Veg of Lund which owns the Dug brand, said its arrival on the high street was a “critical milestone” for the company. It is already available online on sites such as Amazon and Ocado.

Here’s the full story:

A Pets at Home store in Slough, Berkshire.
A Pets at Home store in Slough, Berkshire. Photograph: Maureen McLean/REX/Shutterstock

Pets At Home has appointed Sky UK executive Lyssa McGowan as its first female chief executive, as the pets supplies retailer looks to continue its recent strong growth.

McGowan will succeed Peter Pritchard, who is stepping down this summer after more than a decade at the helm, on 1st June.

McGowan joins from Sky, where she has been chief consumer officer at Sky UK.

Pets at Home chairman Ian Burke says McGowan brings strong corporate, strategic and operational expertise across a range of consumer-facing businesses, and a proven track record of growth at Sky.

“Following an extensive search process across internal and external candidates, the Board believes that Lyssa has the requisite skills and capabilities to lead Pets at Home as it executes its future growth strategy.

Pets at Home has benefited from the boom in pet ownership during the pandemic. It lifted its profit guidance last month, after a strong Christmas, with the ‘humanisation’ of the market boosted sales, such as dog spa days and advent calendars.

Shares in Pets At Home have risen 1% this morning.

With Jennie Daly taking control at Taylor Wimpey (see earlier post), it’s encouraging to see some progress addressing the City’s gender imbalance.

Russ Mould, investment director at AJ Bell, says more needs to be done:

“Lyssa McGowan looks like a great hire for Pets at Home, bringing expertise in data and digital channels for a consumer audience. The pet products retailer has been enjoying recent success with its VIP club which is helping to strengthen customer loyalty and give more insight into spending habits.

“McGowan’s experience in a top consumer role at Sky could help take Pets at Home’s analytical capabilities to the next level. Understanding the customer and how they might spend more money is an important goal for retailers.

“Jennie Daly is an internal promotion at Taylor Wimpey and one that brings nearly 30 years’ experience in the housebuilding and land planning industries. She should know the sector inside out and should be a safe pair of hands in making sure the company is run smoothly.

“Daly becomes the fourth CEO change for a FTSE 100 company in 2022, following appointments at Johnson Matthey, Burberry and Anglo American.

“There are currently eight FTSE 100 companies with a female CEO, not including the forthcoming changes at Taylor Wimpey. The relevant companies are Admiral, Aviva, GlaxoSmithKline, Entain, ITV, NatWest, Severn Trent and Whitbread.

“Liv Garfield at Severn Trent is the longest running FTSE 100 female CEO, having been in charge since April 2014. She’s a member of the 30% Club which is a campaign to increase gender diversity at board and executive-committee levels.

“The 30% Club says: ‘Time and again research shows diverse companies outperform their less diverse peers’. It’s therefore encouraging to see the percentage of FTSE companies with female leadership start to move up, but there is clearly a lot more to be done.”

Full story: UK house prices reach new record but cost of living crisis threatens growth

UK house prices reached a record high in January according to Halifax, but the lender warned growth is likely to slow “considerably” this year as household finances come under increasing pressure.

The price of the average UK home reached a record high of £276,759 in January, up £24,500 over the year, and £37,500 higher than two years ago. However, house price growth slowed to just 0.3% in January, the smallest monthly increase since June last year, in a sign that the pandemic-fuelled boom could be fading.

Russell Galley, a managing director at Halifax.

“While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”

Halifax house price index

Halifax, which has previously said that the housing market “defied expectations” last year, said affordability remains at historically low levels as price rises continue to outstrip growth in earnings.

Last week, the Bank of England raised interest rates for the second time in three months, as it sought to temper inflation, which is running at a 30-year high of 5.4%, with analysts expecting further rises later this year.

Homeowners are also facing a dramatic increase in living costs, including higher energy and food bills, rising phone and broadband charges, and increased national insurance payments from April.

Here’s the full story:

Investor morale in the euro zone has risen this month, as the economic situation around the world has stabilised.

Research institute Sentix’s gauge of investor optimism, released this morning, has increased to 16.6 from 14.9 last month.

Sentix’s expectations index hit the highest since last July, while the measure of current conditions also picked up.

Sentix managing director Manfred Huebner warned that slowing growth abroad, such as in the US, could weigh on Europe’s recovery:

“The development in the USA is problematic. Here the overall index is falling for the third time in a row, which is due to the decline in expectations.

Building more houses could help ease the affordability crisis, by giving potential buyers more properties to aim for.

But a report this morning has shown that new greenfield housing developments are locking residents into car dependency, by making everyday journeys impossible without a vehicle.

Meanwhile, pledges for walking, cycling and public transport are often left unfulfilled, as Laura Laker reports:

The group Transport for New Homes (TfNH) visited 20 new housing developments in England, finding that while those on urban brownfield sites generally lived up to sustainable transport pledges, greenfield sites were often far from shops and amenities, without public transport, cycling links or even pavements, and the homes themselves were seemingly designed around car parking.

Surface transport is responsible for 22% of the UK’s greenhouse gas emissions, and the Climate Change Committee says reducing demand for car travel is key to meeting emission reduction targets. Campaigners say housing pledges in the “levelling up” white paper, launched last week, will do little to achieve this and that planning reform is urgently needed. The government aims to build 300,000 new homes a year to meet growing demand.

The report, Building Car Dependency, which follows research from 2018, says greenfield housing “has become even more car-based” in recent years, adding hundreds of thousands of additional car journeys to our roads.

Housebuilding also faces obstacles; Last month, a House of Lords committee warned that confusion about planning rules and shortages of staff were undermining government targets to build 300,000 homes a year.

Jan Crosby, head of infrastructure, building and construction at KPMG UK, says the UK needs to invest in housing where it’s really needed, including helping key workers to live near their employer:

“We’ve seen another month of house price growth, albeit at a slower rate for a number of months. It will be interesting to see if the cost of living and inflationary pressures have any further impact in the coming months.

“The recent change in interest rates may also impact demand, as many will choose not to borrow and first-time buyers could well be impacted again. It’s likely that as people stay put and continue to develop and extend where they live now, then prices could start to flatten and growth will slow.

What is also important is making sure we invest in housing where it’s needed most, be it affordable housing or for essential workers who can’t afford to buy near the hospital where they work for example.”

Here’s another sign that the markets are anticipating higher interest rates, after the US, UK and eurozone central banks all turned more hawkish recently as inflation has soared.

[A negative bond yield means an investor receives less money when the bond matures than the original purchase price for the bond]

If you’re just reading in, here are the key points from Halifax’s monthly report on the UK housing market:

Halifax house price report, to January 2022

More details start here.

Most European stock markets have begun the week with small gains, as investors ponder how quickly central bankers will raise interest rates to tackle inflation.

In London, the FTSE 100 index is 15 points higher at 7531, up 0.2%. Retail group Next (+1.8%) broadcaster ITV (+1.6%) and engineering firm Melrose (+1.4%) are leading the risers, with mining firms also up.

UK housebuilders are lower, though, with Barratt Development 1.2% lower.

Germany’s DAX is 0.3% higher, with France’s CAC creeping up by 0.15%.

On Friday, a surprisingly strong US labor market report showed that America added 467,000 jobs last month, and 700,000 more than first estimated in November and December.

This bolstered optimism about the US recovery, but could also clear the way for the Federal Reserve to withdraw its pandemic stimulus more quickly and lift borrowing costs through 2022. Markets are pricing in more than five quarter-point Fed rate hikes in 2022.

So stocks could remain choppy, if investors keep to the sidelines until the picture is clearer.

Taylor Wimpey picks Jennie Daly as first woman to lead major UK housebuilder

More property news: Taylor Wimpey has appointed an internal candidate as its first female chief executive.

The move could anger Elliott Advisors, the activist investor which was pressuring the housebuilder to appoint someone from outside the company.

Jennie Daly, who is currently group operations director, will take over from Pete Redfern who has led the business for 15 years since it became the UK’s third biggest housebuilder through the merger of Taylor Woodrow and George Wimpey in 2007.

The move makes Taylor Wimpey becomes the first UK housebuilder to appoint a female chief executive.

The chair, Irene Dormer, said that Daly’s skills “set her apart from the other candidates we were considering”. She’ll become one of only a handful of female CEOs at FTSE 100 companies.

However, the move will inevitably spark a backlash from Elliott, which in December revealed it was one of the company’s top five investors and went public with demands including finding a new chief executive.

In a nine-page public letter to Dorner it said that shareholders were “unlikely to support a chief executive candidate that represents an extension of the status quo at Taylor Wimpey”. More here:

Updated

Ross Counsell, chartered surveyor and director at GoodMove, predicts UK house prices will drop this year, following the slowdown in January:

“Although these statistics show that the property market is continuing to boom, I think it’s fair to say that we can expect house prices to fall this year. With the cost of living going up, many people will find themselves struggling to afford the increasing house prices and will not be looking to buy because of this. This means there will be less buyer demand which in turn, leads to house prices falling.

“For anyone looking to buy a home, I would recommend waiting towards the middle of the year, when we may see the start of a reduction in house prices.”

German industry still waiting for 'ketchup bottle effect'

The Airbus factory at Finkenwerder, Hamburg
The Airbus factory at Finkenwerder, Hamburg Photograph: Action Press/REX/Shutterstock

Supply chain bottlenecks continue to hit German factories and building firms, new data shows.

German industrial production dipped by 0.3% in December, down from 0.3% growth in November, and weaker than the 0.4% rise forecast by analysts.

The construction sector was particularly weak, with production falling 7.3% in December. Production of consumer goods fell by 0.5%, while the production of heavy duty machinery and equipment (capital goods) rose by 2.5%.

It means German industrial production ended 2021 around 6.9% lower than before the pandemic.

Problems sourcing components (such as computer chips), transport delays, high energy costs, staff shortages and Covid-19 disruption have all hit the sector.

Carsten Brzeski of ING says there are some positive signs, but supply chain problems remain a serious problem:

The sharp drop in construction activity weighed on industrial production, while the manufacturing sector saw production increasing for the second month in a row.

Despite these first positive signs, German industry remains in the stranglehold of global supply chain frictions. It is not only semiconductors but all kinds of input goods, ranging from bottom brackets for bikes to magnesium needed in automotive and aircraft construction. This bottleneck problem has reached unprecedented levels. For example, the estimated number of months’ production assured by orders on hand in manufacturing has reached 4.5 months.

German industry is waiting for the “ketchup bottle effect”, Brzeski adds:

Remember the glass ketchup bottle that you shake and tap all you want with no result until suddenly it all comes flooding out and your food is smothered in ketchup? Under the surface of today’s headline data, the bottle has started to drip.

Updated

TUC: Extra 1.3m workers on universal credit since pandemic began

Unions have urged the government to do more to help low-paid workers weather the cost of living crisis, after research found the number claiming universal credit has more than doubled since the start of the pandemic to at least 2.3 million.

The TUC said the 1.3 million increase in working universal credit claimants had been caused by households being pushed into financial hardship during Covid and called for a substantial rise in the payments and a higher minimum wage to head off a “perfect storm” of costs coming in spring.

From 1 April, energy bills will rise on average by £700 to £2,000 a year and a few days later the chancellor’s 1.25% national insurance surcharge will start hitting wage packets.

Unfixed mortgages will start rising in March, while food, rent and other prices have all been increasing at their fastest rate for 30 years.

While the Treasury announced some support on Thursday to mitigate the squeeze, the TUC said that without further intervention, millions more working people would find themselves pushed below the breadline.

Frances O’Grady, the TUC’s general secretary, said ministers need to urgently raise universal credit payments to 80% of the living wage – which is set to rise to £9.50 in April.

“Universal credit urgently needs boosting and we need further action to reduce fuel costs for those battling to make ends meet. The best way to give working families long-term financial security is to get pay rising across the economy.”

Higher borrowing costs could cool the UK housing market, with the Bank of England expected to lift Bank Rate to at least 1% by the end of the year.

But that could make it even harder to buy your first homes, says Myron Jobson, senior personal finance analyst at interactive investor:

Rate rises would compromise affordability for those who can least bear it: first time buyers. This is compounded by increasing cost of living pressures which, for many, could push their goal of buying their first home further out of reach.

“While mortgage rates remain low by historical standards, buyers have to save bigger deposits than they did pre-pandemic as UK house price growth has significantly outpaced the rise in average earnings in recent history.

A slowdown in house price growth this year seems inevitable, says Karen Noye, mortgage expert at Quilter:

With energy prices soaring, inflation running riot and interest rates likely to rise in the very near future people are going to start to feel less financially stable than they were before, and this will translate into fewer property purchases.

House price growth continues to far outstrip wage growth and now with a cost-of-living crisis looming the run of ever-increasing property prices is simply unstainable.

Another unpredictable factor is how businesses will react to the end of office restrictions and guidance to work from home, Noye adds:

While many businesses feel the pandemic has caused a permanent change in how we work, others will mandate a stricter office return. This may reverse the trend that has seen city centre flats become less desirable compared to more rural detached houses.

UK house prices: industry reaction

Supply, affordability and the patience of house buyers are all being stretched, says Lucy Pendleton, property expert at independent estate agents James Pendleton:

She says the pressure on household budgets means “things are going to get choppy”.

The double whammy of last week’s huge hike to energy bills and the quarter-point interest rate rise will continue to create a sense of urgency around completions. With the cost of living so high, first-time buyers in particular, will find it hard to keep their skin in the game

“Slowly the pool of buyers will be whittled away by dwindling affordability and only the most motivated, with the financial means to cope, will be left standing. Monthly growth is anaemic and the shortage of stock and ongoing decline in year-on-year new instructions will soon start to have a negative impact on valuations.

“Mortgage costs have already gone up several hundred pounds and the likelihood of more Bank of England interventions on the way will tempt many into the security of longer fixes.

Property advisor Emma Fildes of Brick Weaver says the house price ‘juggernaut’ could be running out steam, although London seems to be making a comeback.

A lack of properties on the market will support prices this year, predicts James Humphries-Stone, director of Midlands-based estate agency, The Avenue:

“Though the rate of price growth fell slightly in January, demand is massively outstripping supply and that will support values throughout 2022.

As long as supply remains as low as it is, it’s hard to see prices falling despite soaring inflation and rising interest rates. The race for space will continue to drive activity levels throughout 2022, just as it did in 2021.”

It’s astonishing to think that people are paying nearly £40,000 more for the average home than they were before the pandemic, points out Iain McKenzie, CEO of The Guild of Property Professionals:

With rising interest rates, and soaring inflation and the cost of living, we could see this cooling effect settle in for the long-term.

If you are considering selling your home, your local estate agent will be eager to market it, as the demand for property is still outweighing supply.

Halifax’s report also shows that annual house price inflation in London rose for the third month running in January, to 4.5%.

That’s double the rate recorded in December and the highest reading in over a year.

The easing of pandemic restrictions and increased demand from overseas buyers is lifting demand for property in the capital.

Marc von Grundherr, director of estate agents Benham and Reeves, says the London market is stirring.

“It may seem strange to think of London as the tortoise of the UK property market but while the rate of house price growth has been accelerating at alarming rates in the majority of UK regions, the capital’s housing market has remained far more muted.

However, we’re now seeing something start to stir and London house prices have climbed at double the rate seen in December alone. The returning combination of both domestic and foreign demand is helping to rejuvenate the London market and we predict that come the end of the year, the capital will be leading the house price pack once again.”

The average house prices in Wales fell slightly this month, Halifax reports, to £205,253.

That still left Wales’s annual house price inflation at 13.9%, “by far the strongest performing nation or region in the UK”.

Average property prices edged down in Scotland too, to £192,69, with the annual rate of inflation slowing somewhat to 8.9%.

In Northern Ireland, prices were up 10.2% on last year, giving an average property value in January of £170,982.

Across England, the North West remained the strongest performing region, with prices 12% higher year-on-year, with an average house price of £213,200.

UK house prices by region

UK house prices
UK house price inflation Photograph: Halifax

Halifax: House price at record levels, but slowdown looms

UK house prices have hit record highs last month, but the cost of living squeeze means growth is likely to “slow considerably” this year, mortgage lender Halifax says.

Halifax has just reported that house prices rose by 0.3% last month, their slowest monthly rise since last June.

On an annual basis, the rate of growth remained steady at 9.7% last month.

But with household budgets squeezed by rising inflation, and higher interest rates pushing up mortgage costs, the market is expected to cool.

In January, the average UK house price on Halifax’s index rose to a new record high of £276,759. That’s around £24,500 up on this time last year, and £37,500 higher than two years ago, before the pandemic.

Halifax house price index
Halifax house price index Photograph: Halifax

Russell Galley, managing director at Halifax, says house price growth slowed somewhat at the start of the year.

Affordability is already historically stretched, making it even harder to get onto the property ladder, Galley points out:

“Following the peak activity of 2021, transaction volumes are returning to more normal levels. Affordability remains at historically low levels as house price rises continue to outstrip earnings growth. Despite record levels of first-time buyers stepping onto the ladder last year, younger generations still face significant barriers to home ownership as deposit requirements remain challenging.

“This situation is expected to become more acute in the short-term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates. While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”

Introduction: Rising inflation weighs on recovery

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

Inflation will hit UK economic growth this year as consumers are hit by rising prices, economists warn today.

The EY Item Club has cut its forecast for UK economic growth this year to 4.9%, down from 5.6%, as the squeeze on households’ spending power and the omicron variant slow the recovery.

In its latest quarterly assessment of the economy, EY predicts inflation to hit 7% in the spring, its highest level since 1992. That will mean people will see their real wages fall this year (in the biggest squeeze on households on record).

EY predicts the Bank of England will respond by hiking Bank Rate to 1% by the end of this year -- having lifted them to 0.5% last Thursday.

On the upside, EY says the UK GDP grew 7.3% in 2021, up from the 6.8% predicted in its previous forecast.

Hywel Ball, EY’s UK chair, says:

“The forecast shows that the economy’s bounce back in 2021 was stronger-than-expected and Omicron’s economic impact is likely to be temporary and limited. While the economy and UK businesses may have a softer launch pad for growth this year, they will still benefit from a number of tailwinds in 2022 and 2023.

“But blowing in the opposite direction will be a squeeze on household spending power which is expected to be a bigger headwind for the economy than the Omicron variant. Inflation is set to reach its highest level in thirty years by the spring and will be well ahead of pay growth.

“Although the latest forecast says that the economic scarring from the pandemic is likely to be minimal, policymakers still face the challenge of how they help support households through the forthcoming squeeze on their finances and give companies the confidence needed to unlock business investment. The push towards Net Zero certainly creates an opportunity for investment growth.”

Financial services firm Deloitte has warned that the economic picture is also looking darker. It reports that consumer confidence during the last quarter of 2021 as people were hit by higher household bills and inflation.

The UK cost of living squeeze is set to worsen, with the chairman of Britain’s biggest supermarket chain warning that food price inflation will soon hit 5%.

John Allan, who has chaired Tesco since 2015, told the BBC’s Sunday Morning programme that he was well aware people on very tight budgets were having to choose between food and heating.

“In some ways the worst is still to come – because although food price inflation in Tesco last quarter was only 1%, we are impacted by rising energy prices.

Our suppliers are impacted by rising energy prices. We’re doing all we can to offset it … but that’s the sort of number we’re talking about. Of course, 5%,”

European stock markets are set to start the new week with small gains, with the FTSE 100 index up 0.3% in pre-market trading.

The agenda

  • 7am GMT: German industrial production for December
  • 7am GMT: Halifax house price index for January
  • 3.15pm GMT: Treasury committee hearing: is inflation back to stay?
  • 3.45pm GMT: ECB president Christine Lagarde testifies to the European Parliament committee of Economic and Monetary Affairs

Updated

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