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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Sharon White stepping down from John Lewis; UK house prices fall at fastest rate since 2009 – as it happened

Nationwide United Kingdom United States Robert Gardner Housing Market EY ITEM Club Interest Rates The Bank of England the EY Item Club
Dame Sharon White is to stand down as chair of the John Lewis Partnership.
Dame Sharon White is to stand down as chair of the John Lewis Partnership. Photograph: Jeff Overs/BBC/PA

Afternoon summary

Time to recap.

Dame Sharon White is to step down as chair of the John Lewis Partnership when her five-year term ends in February 2025, putting the future of the loss-making group in the spotlight again.

White today asked the partnership’s board to start the process of appointing a successor, to take over when her first term ends in February 2025. This will make her the shortest-serving chairperson in its 160-year history.

White said:

“Having led the Partnership through the pandemic and the worst of the cost of living crisis, it is important that there is now a smooth and orderly succession process and handover.

Analysts said White had faced serious hurdles, including the Covid pandemic and high inflation; but there are also calls for a “seasoned shopkeeper” to be appointed as her successor.

Zoe Mills, lead retail analyst at GlobalData, says:

“Dame Sharon White has been at the helm of the John Lewis Partnership during an exceedingly rocky period.

She has faced unprecedented challenges, namely the global pandemic, and the cost-of-living crisis. Indeed, while she will have been its shortest-serving chair in its history, she will have withstood at least four Prime Ministers during her tenure….

Her time has been marred by controversy when discussions of altering the employee-owned structure of the partnership were revealed but quickly shelved.

John Lewis has also named a KitchenAid food mixer, a Sage bean-to-cup coffee machine, a fitness tracker, wireless headphones and an air fryer as products of the decade:

UK house prices fell by 5.3% in the year to September, lender Nationwide reported, with drops in price in every region of the country as rising interest rates squeeze the market.

That matches August’s fall, which was the biggest annual drop since 2009.

UK factories have suffered another contraction, with manufacturers hit by weakening demand in September.

Water companies are facing a backlash from campaigners after revealing they will ask customers to pay for a record £96bn investment to fix raw sewage leaks, build new reservoirs and reduce leaks.

More than half of businesses have opened offices or working spaces outside city centres, in response to the shift towards hybrid working, according to new research.

Thinktank Demos has called for government spending on preventative policies from vaccines to family hubs to be significantly increased.

Updated

After a positive start this morning, the London stock market has dropped into the red as the day’s trading has gone on.

The FTSE 100 index of blue-chip shares is now down by 1.4%, or 107 points, at 7500 points, the lowest in over two weeks.

Other European markets are also in the red.

Investor mood has been dampened by today’s economic data showing weakening factory activity in the UK and eurozone.

Conversely, the drop in eurozone unemployment this morning – and a pick-up in US manufacturing – has fuelled concerns that interest rates will stay high for longer.

Government bond prices have also weakened, pushing up bond yields.

In the transport world, Rishi Sunak is set to confirm he is scrapping the northern leg of HS2 to Manchester at the Conservative conference in the city.

The move is expected despite a furious response and Tory fears it will fatally undermine the party’s commitment to levelling up. Here’s the full story.

Downing Street, though, insist that a final decision hasn’t been taken.

(Such a final decision would be taken at a cabinet meeting, which hasn’t happened yet)

Updated

Back in the world of economics, America’s factory sector has recorded a small contraction last month.

US manufacturers reported a fractional deterioration in overall operating conditions during September, according to the latest survey of purchasing managers from S&P Global.

Manufacturing firms posted a small rise in output last month, but were hit by a fall in new orders.

This left the US manufacturing PMI at 49.8 in September, up from 47.9 in August, but just below the 50-point mark showing stagnation.

Chancellor Jeremy Hunt has pledged to bring in tougher rules to stamp out “debanking” – the practice of shutting or denying accounts to customers based primarily on their political beliefs – days after the UK’s financial regulator didn’t find any evidence that it’s a problem.

Speaking at the Conservative party conference in Manchester, Hunt told delegates that “nobody should have their bank account closed because someone else decides they’re not politically correct”.

Hunt said the government would “tighten the law” to stop people being “debanked for the wrong political views”, which he followed by a few jibes at political opponents (as this video clip shows:)

The Treasury say that banks will be forced to show exactly how they are protecting customers’ freedom of speech, under a shakeup of the rules, and that banks must take existing obligations not to discriminate seriously.

Last month, the Financial Conduct Authority (FCA) revealed the initial findings of an investigation showed the primary reason for accounts being closed, suspended or denied was either that the account was inactive, or that they had concerns that the customer was involved in financial crime.

This issue flared up over the summer, after Nigel Farage said his business and personal accounts were being closed as a result of his political beliefs. A 40-page dossier compiled by Coutts staff accused Farage of being a “disingenuous grifter” who promoted “xenophobic, chauvinistic and racist views”.

Farage’s case, though, was understood not to have been included in the FCA’s probe, as his Coutts accounts were not actually closed.

Over in Wall Street, Tesla’s shares are set to fall after the electric carmaker missed market estimates for third-quarter deliveries this morning.

Tesla has reported delivered 435,059 vehicles in the July-September quarter, a fall of almost 6% compared with April-June, when it handed over 466,140 new models.

Tesla says this sequential decline in volumes was caused by planned downtimes for factory upgrades, and that its target of delivering around 1.8m vehicles during 2023.

Financial analysts had expected Tesla to deliver 454,100 vehicles, according to 19 analysts polled by Visible Alpha.

Tesla shares are down almost 3% in pre-market trading.

Sharon White had an impressive CV when she was appointed as John Lewis’s chair in 2019.

Having run communications regulator Ofcom, White had also held a senior position in the Treasury, and also worked at the World Bank, the British embassy in Washington, and Tony Blair’s policy unit at No 10.

She’d been suggested as a possible Bank of England governor in 2019 too.

But he didn’t have experience of UK retail, and joined John Lewis just as the pandemic struck.

Bloomberg Opinion columnist Andrea Felsted says White made some missteps:

White assumed pandemic purchasing via smartphone would be permanent and closed 16 John Lewis outlets, including six department stores. That now looks shortsighted, as consumers are rediscovering IRL shopping.

In July 2020, she set out plans to expand John Lewis’s financial services and to move into private rented housing. The aim of her strategic blueprint was to revive the partnership’s profit in three to five years. But last month, she said this plan wouldn’t deliver the targeted £400 million ($486 million) until 2028, two years later than envisaged.

A seasoned shopkeeper is needed to get the partnership back on track, Felsted adds:

While its first-ever chief executive officer, Nish Kankiwala, has significant consumer goods know-how, he hasn’t led a retailer either. The company has plenty of time to find the right candidate. It should make use of this period to ensure the new chair has run both physical stores and an internet operation.

The successful candidate should then dismantle some of the distractions that John Lewis is now saddled with, such as the financial services expansion and the housing venture.

In the department stores, this person should stick to selling products that consumers want to buy, at prices they feel deliver good value for money. At Waitrose, meanwhile, the new chair should ensure management — which should also be bolstered with more supermarket expertise — puts the supply-chain problems that have plagued the grocer behind it.

More here: New John Lewis Chair Must Find Its Way Back Into British Hearts

The news that Sharon White won’t seek a second term running the John Lewis Partnership came just hours after the retailer released its latest retail report, looking at key shopping trends and products.

My colleague Zoe Wood explains:

They are the things you didn’t know you needed but now can’t live without: a fitness tracker, wireless headphones, a fancy “bean-to-cup” coffee maker and, more recently, an air fryer. For women add a flattering jumpsuit and white trainers (but forget the floral midi).

Kitchen gadgets come and go but a KitchenAid food mixer and Sage bean-to-cup coffee machine are among the (pricey) products that “defined” changing tastes during a period bookended by the post-Olympics glow and a grim cost of living crisis, it says.

Back in the eurozone, meanwhile, unemployment has dropped back to a record low.

The jobless rate across the euro area fell back to 6.4% in August, down from 6.5% in July, and back to the historic low set earlier this year.

In the wider European Union, it fell to 5.9% from 6%.

Statistics body Eurostat says there are now 12.837m unemployed people in the EU, including 10.856m in the euro area.

Compared with July 2023, unemployment decreased by around 112,000 in the EU and by 107,000 in the euro area.

ING analyst Bert Colijn says the eurozone labour market is showing “incredible resilience”, adding:

Spain, France and Italy all saw unemployment tick down, while countries with very low unemployment rates like Germany and Netherlands experienced a stable unemployment rate in August.

Developments in the labour market have been somewhat puzzling. Economic growth has broadly stalled for about a year now, but the job market has continued to thrive. This seems to be the case for a variety of reasons like strong performance in several sectors, labour hoarding, sick leave and a preference for shorter work hours.

Some of these factors do not necessarily behave cyclically, which makes it difficult to get a good handle on how unemployment will develop in the coming quarters.

GlobalData: White faced 'unprecedented challenges'

Sharon White will part ways with John Lewis Partnership after a challenging tenure, says GlobalData’s lead retail analyst, Zoe Mills.

Mills explains:

“Dame Sharon White has been at the helm of the John Lewis Partnership during an exceedingly rocky period. She has faced unprecedented challenges, namely the global pandemic, and the cost-of-living crisis. Indeed, while she will have been its shortest-serving chair in its history, she will have withstood at least four Prime Ministers during her tenure.

“White oversaw the removal of the “Never Knowingly Undersold” price promise but failed to replace it with anything meaningful.

The implementation of its ANYDAY range has been successful to some degree in enabling customers to trade down within the store as the cost-of-living crisis hit, but it has noticeably reduced marketing of the brand over the last year, indicating that it may have damaged quality perceptions of the retailer.

Whoever replaces White faces “significant challenges”, Mills points out, adding:

The most important being that they ensure that the two-year delay on its transformation plan slips no further.”

Updated

Sharon White has faced a number of challenges since she began running John Lewis in 2020, points out Victoria Scholar, head of investment at Interactive Investor.

This includes pressures from the cost-of-living crisis which resulted in first-half loss before tax and exceptional items of £57.3m this year and an underlying £77.6m pre-tax loss in the 2022-23 financial year.

The company’s turnaround plan is taking longer than expected – White said that a high requirement for investment as well as inflationary pressures have meant it will take two years longer than expected to revive profit levels.

The cost-of-living crisis with a softer consumer backdrop means John Lewis shoppers are holding off from spending on expensive big-ticket items like white goods and technology. However, they are still spending on cheaper items like fashion and beauty. In Waitrose, inflation has been responsible for the latest rise in sales with average prices rising by 9% whereas the volume of goods sold dropped by 5%.

Profits have been struggling at John Lewis for a number of years amid high costs relating to its vast store estate and the rise in cheaper e-commerce rivals like Amazon. Waitrose has struggled as customers become increasingly price sensitive amid the elevated inflation, rising interest rate environment, as well as stiff competition from cheaper rivals like Aldi and Lidl.

Focus will be on the all-important festive period when John Lewis typically enjoys a seasonal boost. It is a daunting task at hand to revive John Lewis’ fortunes at an already challenging time for retail more broadly, laid bare by the recent collapse of Wilko.

UK manufacturing stuck in contraction

The downturn at UK manufacturing continued in September, new data shows, which could drag the economy into a contraction by the end of this year.

Data provider S&P Global reports that output, new orders and employment at UK factories all fell last month.

Manufacturers were hit by weaker demand from both domestic and overseas customers, with exports suffering from client uncertainty and the subdued global economic situation.

This left the UK manufacturing purchasing managers’ index at 44.3 in September – below the 50-point mark showing stagnation, and one of the weakest readings in the last 14 years (although slightly higher than August’s 39-month low of 43.0).

The report says:

All five of the sub-indices comprising the PMI (new orders, output, employment, stocks of purchases and supplier delivery times) were consistent with a weakening of underlying sector performance.

Manufacturers said they cut their output for the seventh month running, as they reacted to falling new orders.

Demand was hit by “ongoing market uncertainty, the cost-of-living crisis and weak conditions in overseas markets”, the report says.

New export business contracted for the twentieth month in a row, due to lower demand from within Europe, the US, mainland China and Brazil.

Rob Dobson, director at S&P Global Market Intelligence, explains:

“September saw the manufacturing sector still mired in contraction territory, as weak conditions at home and abroad hit new order intakes and led to a further scaling back of production volumes.

The cost-of-living crisis and recent rapid rise in interest rates are taking their toll, according to producers, raising the possibility of the broader UK economy slipping back into contraction during the second half of the year.

The downturn is being felt throughout the manufacturing sector, with demand falling from both households and businesses. The resulting rise in caution at manufacturers is driving risk aversion and shifting their focus towards margin protection and cost control, highlighted by further cuts in employment, purchasing and inventories. These all point to companies battening down the hatches in expectation of stormy conditions ahead.

There was slightly better news for producers on the price front, as a mix of lower costs and rising selling prices aided margin protection efforts. However, with oil prices on the rise, the environment may become less disinflationary in the coming months.

Full story: John Lewis boss Sharon White to step down

Sharon White, the chair of British retailer John Lewis Partnership, plans to step down in February 2025 at the end of her five-year term, my colleague Sarah Butler reports.

White has asked the board of John Lewis – Britain’s biggest department store chain, which also operates Waitrose supermarkets – to start looking for a successor as she will not seek a second term.

Her resignation makes White the shortest serving chair in the business’s history, according to the BBC, which first reported her planned exit.

She has also requested a review of the chair’s accountabilities to ensure that these continue to support a turnaround plan.

White said:

“Having led the partnership through the pandemic and the worst of the cost of living crisis, it is important that there is now a smooth and orderly succession process and handover.

“The partnership is making progress in its modernisation and transformation with improving results. There is a long road ahead and I am committed to handing on the strongest possible partnership to my successor.”

She said the chair of John Lewis was “a special and unique role in UK business” with responsibilities for the “long-term health” of the group’s staff-owned model which aimed for “commercial success twinned with a commitment to first rate customer service and action in our communities”.

Here’s the full story:

Sharon White has faced serious challenges through her time running John Lewis – with retailers hit by pandemic lockdowns, and the highest inflation rate in four decades.

Bloomberg says:

White was appointed in 2020 from the UK’s telecommunications regulator Ofcom and hadn’t previously worked in retail. Her overhaul of John Lewis has faced setbacks from the Covid pandemic and Britain’s high rate of inflation which she said has hit the business “like a hurricane.”

She was recently forced to push back a crucial turnaround plan by two years, meaning the company won’t hit a goal of £400m in profits until 2027/28. There could also be a setback to plans for 40% of profits to come from non-retail activities, such as housing, by 2030.

PA point out that Sharon White joined the employee-owned business at the start of 2020 and has since led a major overhaul which has included a raft of store closures and a shift in new business areas such as rental accommodation.

The BBC says Sharon White will be the shortest-serving chair in the John Lewis partnership’s 100-year history, when she steps down next year.

Sharon White to step down from John Lewis

Dame Sharon White, chairman of John Lewis Partnership
Dame Sharon White, chairman of John Lewis Partnership Photograph: Terry Murden/Alamy

It’s official: Sharon White, the chairman of the John Lewis Partnership, is to stand down when her current term expires after five years at the group, as rumoured this morning (see earlier post).

In a statement, JLP says White has asked the Partnership Board to initiate the process to appoint a successor as she enters “the latter stages of her five-year term”, which is officially due to end in early 2025.

White began the role in February 2020 and her five-year term as Chairman comes to an end in February 2025.

As part of the recruitment process, White has also asked the Board to review the accountabilities of the Chairman’s role to ensure that these continue to support the successful transformation of the business, JLP says.

White says:

“The Chairman of the John Lewis Partnership is a special and unique role in UK business. The Chairman is responsible for the long-term health of the Partnership’s model – commercial success twinned with a commitment to first rate customer service and action in our communities.

“Having led the Partnership through the pandemic and the worst of the cost of living crisis, it is important that there is now a smooth and orderly succession process and handover.

“The Partnership is making progress in its modernisation and transformation with improving results. There is a long road ahead and I am committed to handing on the strongest possible Partnership to my successor.”

As flagged earlier, John Lewis warned last month that its plan to return to “sustainable” profit would take two years longer than planned, partly due to the impact of inflation. It made a £59m loss for the six months to July.

In March, it posted a worse than expected £230m full-year loss in the last financial year, meaning staff at its John Lewis department stores and Waitrose supermarkets didn’t get a bonus.

Updated

UK mortgage rates have continued to slip away from their recent highs.

Data provider Moneyfacts reports that the average rate on two-year, and five-year fixed home loans slipped a little today.

Here’s the details:

  • The average 2-year fixed residential mortgage rate today is 6.47%. This is down from an average rate of 6.48% on the previous working day.

  • The average 5-year fixed residential mortgage rate today is 5.97%. This is down from an average rate of 5.98% on the previous working day.

Eurozone manufacturing sector stuck in deep downturn

In the economic world, the eurozone manufacturing sector remained mired in a deep downturn last month as factory orders plummeted and job losses accelerated.

The latest poll of purchasing managers across the euro area found that the eurozone manufacturing economy continued to contract at a sharp rate at the end of the third quarter.

The latest HCOB PMI data found considerable weakness across the sector, with new orders continuing to shrink at one of the fastest paces since the survey began in 1997.

Firms cut back on job numbers, bought fewer components and less raw materials, and also ran down their inventories, even though input costs fell sharply yet again.

This pulled the HCOB eurozone manufacturing PMI down to 43.4, from August’s 43.5, which shows a sharper contraction.

Germany’s factory sector suffered a faster drop in activity, with output there falling at the fastest rate in almost three-and-a-half years.

One in four new UK homeowners opt for ‘marathon mortgages’ to cut payments

A quarter of young homeowners who have a new mortgage have opted to pay it back over 35 years or more in an attempt to make monthly payments more affordable, according to Experian this morning.

Analysis by the credit data company found that 25% of new homeowners aged 29 and under between January and March this year had opted for a repayment term of at least 35 years.

This compares with the historical typical level of about 10%, which Experian recorded in January 2020.

First-time buyers and movers are increasingly opting for “marathon” mortgages – with lenders offering terms of as long as 40 years on some deals – for lower monthly payments in an effort to bridge the gap between rising living costs and still-high asking prices.

More here:

BBC: Sharon White to step down at John Lewis

The BBC’s Simon Jack is reporting that Sharon White plans to stand down as chair of the John Lewis Partnership, when her current term ends in 2024:

White, the former CEO of communications regulator Ofcom, has had a tough time at John Lewis – staff were critical of the group’s performance earlier this year, and last month it admitted its turnaround plan will take two years longer than scheduled.

She has also been mentioned as a possible candidate for a peerage should Labour win the next election:

Updated

Julian Jessop, economics fellow at right-wing thinktank the IEA, predicts house prices have further to fall:

In the last quarter, flats saw the largest year-on-year fall (-5.7%), compared to -3.6% for detached gomes, -4.6% for semi-detached and -5.3% for terraced properties, Nationwide reports.

That’s despite transaction volumes for flats holding up better than other property types.

This map shows how all UK regions recorded annual house price falls in the third quarter of this year:

A map of UK house prices

Tom Bill, head of UK residential research at Knight Frank, predicts house prices will start to rise on an annual basis after the next general election (which has to take place by the end of January 2025).

“Fourteen consecutive rate rises have taken their toll on the property market but more stable lending conditions means buyers and sellers will be able to catch their breath.

The number of people rolling off more favourable fixed-rate mortgages won’t fall in 2024, but sentiment should improve as volatility reduces. We think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”

Updated

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, agrees that a full house price crash is unlikely, saying:

‘Softer pricing is unsurprising as higher interest rates have a much larger impact on affordability than asking prices. Last year’s pricing levels, which were buoyed up artificially by policies such as the stamp duty holiday and very low interest rates, are no longer achievable.

‘However, unlike commercial property such as offices, which in many cases have fallen in value by 20-30%, it’s unlikely that we experience a full house price crash. Firstly, this is due to the ‘necessity’ of housing. We all need a roof over our heads. Secondly, a large proportion of the market are owned outright, and they are unaffected by mortgage interest rates. For this reason, fears of a ‘house price crash’ are unrealistic.

‘The challenge is less around house prices and more around the shortage of rental homes, which are in ever greater demand due to reduced affordability of buying a home. The relative stability of house prices combined with a growing supply shortage in rental is encouraging new institutional investment, and this is essential for ‘Generation Rent’.’

EY ITEM Club: UK housing market is middle of a soft landing

The UK housing market is in the midst of a soft landing rather than a serious correction, predicts the EY ITEM Club group of economic forecasters.

They expect house prices to decline over the rest of this year and into 2024, with prices eventually around 10% below their record peak last year.

Martin Beck, chief economic advisor to the EY ITEM Club, says:

“What had been a downward trend in the Nationwide measure of house prices saw some relief in September. Average values held steady, following August’s 0.7% decline. But this left prices in Q3 still 3.1% down on the previous quarter, the fourth consecutive quarterly fall.

“Alongside mortgage approvals and mortgage lending remaining at low levels over the summer, weakness in house prices is another sign of the effect of the substantial rise in mortgage rates over the last 18 months or so. And with that effect still filtering through the economy, the EY ITEM Club thinks that, monthly volatility aside, house prices will likely drift down further.

“However, the outlook for the housing market has improved in one important respect. The Bank of England’s decision to pause interest rate rises in its last meeting means the current rate rise cycle has likely peaked at a level much lower than many expected only a few months ago.

Although price fell by over 5% over the last year, September’s house price data is stronger than expected.

Victoria Scholar, head of investment at interactive investor, explains

“UK Nationwide house prices came in unchanged month-on-month in September, outpacing expectations for a drop of 0.4% and improving from a drop of 0.8% in August.

Year-on-year they fell by 5.3%, a slightly smaller drop than analysts’ forecasts for a decline of 5.7% but still the biggest annual drop since 2009, matching August’s reading. All regions suffered annual house price falls in the third quarter but the South West was the weakest performing region with prices down 6.3% year-on-year. The average house price now stands at £257,808.

The housing market is under pressure as rising borrowing rates weighing on mortgage approvals and monthly mortgage payments rise sharply as a percentage of average income. However with the Bank of England at or close to the peak of the rate hiking cycle, inflation coming down and house prices cooling, some pressures for potential homeowners could ease in the months ahead. Nonetheless the era of cheap mortgage rates is now just a distant memory with the housing market having to recalibrate to reflect the shift towards higher for longer interest rates.”

Updated

In one line, the UK housing market is “close to bottoming out.”

That’s the verdict from Samuel Tombs, chief UK economist at Pantheon Macroeconomics, on today’s housing data from Nationwide.

He explains:

Nationwide’s house price index remains on a downward trend—September’s unchanged reading followed August’s hefty 0.8% month-to-month decline—due to the severe blow to affordability from higher mortgage rates.

Nationwide calculates that the proportion of first time buyers’ take-home pay absorbed by monthly mortgage payments has soared to 38%, from a 20-year low of 27% in Q3 2020, and now is well above its 1985-to-present average, 29%.

Nonetheless, affordability should begin to improve over the coming months, as mortgage rates respond to the recent decline in expectations for Bank Rate, and as wages continue to rise, albeit not at their recent frenetic pace. The recent recovery in consumers’ confidence—GfK’s measure of consumers’ expectations for their personal finances over the next 12-months was only a smidgen below its 40-year average in September—suggests that demand also might start to firm up.

The pick-up in rents also will increase the share of income that FTBs are willing to devote to housing. Accordingly, the downturn in house prices probably has only a few months left to run.

We continue to look for a 6% peak-to-trough decline in the official measure of house prices, with the nadir coming in Q1.

A chart of UK house prices
A chart of UK house prices Photograph: Pantheon Economics

Annual growth in the North vs the South
Annual house price growth in the North vs the South Photograph: Nationwide

South West England was the weakest performing region, with house prices down 6.3% year on year in the last quarter.

But the smaller annual fall was recorded in Northern Ireland, where prices are 1.8% lower than a year ago.

A chart showing regional house price changes in September 20234
A chart showing regional house price changes in September 20234 Photograph: Nationwide

In Wales, prices fell 5.4% per year in the July-September quarter, down from a 1.4% fall in April-June.

In Scotland, price falls also accelerated – to -4.2%, from -1.5% in Q2.

Nationwide’s Robert Gardner adds:

“Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 3.9% compared with Q3 2022.

The North was the strongest performing northern region, with the annual rate of change improving from -3.3% to -2.0%, while the East Midlands was the weakest, with a 5.5% decline.

Updated

Introduction: House price growth remained weak in September

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

We start the week with fresh evidence that the UK housing market is weak.

Average UK house prices fell by 5.3% in the year to September, or by around £14,500, a new report from lender Nationwide shows, as high interest rates hit affordability.

That matches the 5.3% drop in August, on Nationwide’s gauge of the housing market, which was the weakest rate since July 2009.

On a monthly basis, price were flat in September on a seasonally adjusted basis, Nationwide reports, with the average house price now £257,808.

Robert Gardner, Nationwide’s Chief Economist, said falling affordability is hitting house prices:

“Housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, c.30% below the monthly average prevailing in 2019 before the pandemic struck. This relatively subdued picture is not surprising given the more challenging picture for housing affordability.

For example, someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take home pay on their monthly mortgage payment – well above the long-run average of 29%.

But, recent falls in borrowing costs – if sustained - will ease some of the pressure on those remortgaging or looking to buy a home, Gardner adds:

Investors have marked down their expectations for the future path of Bank Rate in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening.

This in turn has put downward pressure on longer term interest rates which underpin fixed rate mortgage pricing.

A chart showing UK swap rates

But although the Bank of England left interest rates on hold last month at 5.25%, mortgages rates are unlikely to return to the historic lows seen in the aftermath of the pandemic.

Gardner explains:

Instead, it appears more likely that a combination of solid income growth together with modestly lower house prices and mortgage rates will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.

More details to follow….

Also coming up today

The latest healthchecks on factories in the UK, due this morning, are likely to confirm that activity shrank in September, as early data last month showed.

Purchasing manager surveys from across Europe will probably also show eurozone manufacturing contracted last month.

Stock markets are set to open higher, with investors relieved that a US government shutdown was averted at the last minute over the weekend.

And UK water companies are presenting plans to upgrade their networks to tackle pollution problems, with customers bills to bear the costs.

The agenda

  • 7am BST: Nationwide’s house price index for September

  • 9am BST: Eurozone manufacturing PMI (final reading) for September

  • 9.30am BST: UK manufacturing PMI (final reading) for September

  • Noon BST: UK water companies to publish five-year business plans to regulator Ofwat

  • 3pm BST: US manufacturing PMI (final reading) for September

Updated

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