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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK’s public finances on ‘unsustainable’ long-term path; house prices surge despite squeeze – as it happened

Halifax (Organization) United States United Kingdom Persimmon Office for National Statistics Russell Galley Sainsbury Inflation Office for Budget Responsibility
Soaring energy prices and inflation threaten to tip the UK into recession, fiscal watchdog warns.
Soaring energy prices and inflation threaten to tip the UK into recession, fiscal watchdog warns. Photograph: Bloomberg/Getty Images

Closing post

Time to wrap up..... here’s today’s main stories:

And our rolling coverage of Boris Johnson’s resignation is here:

Goodnight. GW

The UK-focused FTSE 250 share index has gained 1.5% today, closing 281 points higher at 18875 points, a one-week high.

That outpaces the blue-chip FTSE 100, dominated by international firms,which has closed 81 points higher at 7189, up 1.15%.

It’s been a decent day for sterling, and the London stock market.

The pound is holding its gains this afternoon after Boris Johnson said he would quit as prme minister, up three quarters of a cent at $1.20.

David Madden, market analyst at Equiti Capital, says the easing of political uncertainty helped sterling recover from Wednesday’s two=year lows.

The British pound rallied today on the news that Prime Minister Johnson will resign. Mr Johnson’s premiership suffered a series of knocks recently, and that sparked a flurry of resignations from cabinet members – which hurt the pound.

Now that Boris Johnson has declared his intention to step aside, sterling has rebounded as a certain amount of political uncertainty has been put to bed. The Conservative party will begin the search for a Prime Minister but that is another day’s matter.

Philip Shaw of Investec pointed out that the resignation of a government leader would usually cause a sharp sell-off in the country’s currency, but not this time.

One could argue that Mr Johnson’s departure removes, or at least lessens, some of the downside risks facing the pound. In its discussions over the Northern Ireland protocol, Boris Johnson’s government has become increasingly hostile towards the EU in recent months, running the risk of increasing trade frictions with the EU. In addition, as public dissatisfaction with the UK government grew, Scottish independence may have seemed more appealing to Scottish voters.

The SNP’s request for a second referendum has been rejected, but Scottish First Minister Nicola Sturgeon has said that the next general election will become a ‘de facto’ referendum if no second vote is permitted. A change at No. 10 may help to douse Scottish appetite for separatism.

Dairy farmers are warning that a chronic shortage of workers is hitting milk production and further fuelling food price inflation, and are calling for urgent action to stop the situation getting worse.

Eight in 10 farm owners looking for workers said they had received very few or zero applications from people with the right experience or qualifications, in response to a survey by Arla Foods, the UK’s largest dairy co-operative.

Farmers are blaming Brexit and Covid for their recruitment problems, saying that the combination of the end of free movement for EU workers and the aftermath of the pandemic, along with other economic factors, is making it harder to find suitable staff.

Sainsbury's shareholders vote against committing to pay real Living Wage

Sainsbury’s shareholders have rejected a motion directing the company to become a Living Wage accredited employer, at today’s AGM.

Only around 17% of votes were cast in favour:

If passed, the motion would have committed Sainsbury’s to paying its contractors the real living wage, as well as its staff (as it currently does) -- and also to implement future rises in the .

Martin Scicluna, chairman of Sainsbury’s, says:

“We are proud to have led the way on colleague pay in our industry for the past five years and to pay our colleagues the living wage regardless of where they work in the country.”

“We would like to thank our shareholders for their overwhelming votes of support and confidence in how Simon [CEO Simon Roberts] and his team are running the business.

We believe very strongly in paying people well for the excellent job they do for our customers every single day. We also believe that we need to make all business investment decisions independently and that these decisions should not be outsourced to a third party.”

The house always wins, except today when gambling stocks are dominating the list of biggest losers on the London stock market.

The most obvious cause was a forecast downgrade from Entain, owner of Ladbrokes and Coral, which cut guidance for the full year, blaming soaraway inflation for curtailing punters’ spending power (see earlier post).

But political factors may well have been at play too.

As the Guardian has reported, senior No10 advisers with ties to the gambling industry, as well as Jacob Rees-Mogg, were believed to be trying to water down tough regulatory reforms drafted by gambling minister Chris Philp. A white paper, due next week before the political chaos, was expected to be a lucky escape for bookies and online casinos.

Now the PM is headed for the exit, helped on his way by resignations including that of Philp himself, once a staunch Johnson loyalist. Philp parted with a warning shot to the PM, to publish a “full and undiluted” version of the white paper.

With the power balance shifting fast, final publication of the white paper could be delayed, giving reformists such as Iain Duncan Smith the power and the time to get tougher reforms reinstated.

Gambling shares extended early losses as reports leaked out that the PM was preparing to address the nation.

Entain, which started the sell-off with its gloomy update, lost as much as 10% before recovering to be 6.75% down by early afternoon, the biggest faller on a rising FTSE100. Flutter lost 4.4%, while 888 was 4% lower.

Economic news: The United States trade deficit with the rest of the world has fallen, due to a pick-up in exports.

The trade deficit narrowed 1.3% in May to $85.5 billion, the Commerce Department reported, the smallest trade deficit since December’s $78.9bn.

Exports rose 1.2% to a record $255.9bn, the fourth straight monthly gain as rising energy prices pushed up the value of sales overseas.

Imports rose 0.6% to $341.4bn, still below March’s record high, with shipments of consumer goods dropping.

Updated

Stuart Rose, the veteran retailer and Conservative peer, has urged Boris Johnson to leave 10 Downing Street now, describing him as a “lame duck prime minister”.

Lord Rose, chair of supermarket chain Asda, warned the economy was being neglected amid the political crisis:

This has been too long in happening and it is unsustainable to continue with a hamstrung, lame duck prime minister into the autumn.

There doesn’t seem to be anybody dealing with the serious issue of the economy. This political crisis has hamstrung everything.”

His comments came as a series of business leaders responded to Johnson’s resignation and the appointment of an interim cabinet by calling for tax cuts to support the UK’s deteriorating economy. More here:

Moody’s Analytics: Johnson’s resignation creates period of additional uncertainty

Britain’s next leader needs to get to grips with the cost of living crisis, regional inequalities, and the risks from climate change, says Moody’s Analytics senior economist, David Muir.

Boris Johnson’s resignation creates a period of additional uncertainty for the UK which would ideally be quickly resolved.

Whoever takes over will need to re-focus policy on addressing the key risks to the economy, such as the cost of living squeeze, and also the UK’s longer term challenges, in particular, measures to take forward the levelling up agenda and to mitigate risks from climate change.”

You can catch up with all the latest dramatic political developments here:

The dispute that threatened a walkout of British Airways check-in staff at Heathrow airport during the summer holidays was suspended, after the airline made a “vastly improved” pay offer, transport correspondent Gwyn Topham explains.

After a day of talks on Wednesday a package was agreed with the Unite union that sources said in effect met its demand to restore the 10% pay cut introduced during the pandemic.

A one-off bonus payment for 2022 worth 10% of pay had earlier been rejected.

The offer will now be put to a ballot of Unite members but both parties hope that the agreement will resolve the immediate dispute.

A British Airways spokesperson said:

“We are very pleased that, following collaboration with the unions, they have decided not to issue dates for industrial action. This is great news for our customers and our people.”

The FTSE 250 index of medium-sized firms is up around 1% today, at a one-week high,

James Penny, chief investment officer at TAM Asset Management, says domestic firms could benefit from a new PM.

“Clear winners from Boris Johnson’s resignation might not be immediately apparent until a successor is found. Having said that, it’s likely his successor will have a softer stance on Europe and Brexit negotiations, boosting positivity for UK domestic businesses found in the mid and small cap space which have been battered as of late. This could be further boosted if the successor manages to right the UK ship and thus stabilise the pound, which would boost domestic businesses in the FTSE 250 and AIM.

“The UK economy will always respond positively to a firm hand on the tiller of the country, so this is only a benefit for the economy and its prospects as we head into a time of economic contraction. The crossroads of inflation and the cost-of-living crisis are also likely to be more clearly managed going forward.

Both should boost the pound and boost domestic asset prices. The overarching caveat is the UK is ostensibly a lot closer to an economic recession than many other developed nations, so the storm clouds on the UK market are far from dissipating. However, this development is undoubtedly positive for the UK market, the UK economy and its voters.

Shares in British Airways parent company rose after the industrial dispute affecting its check-in staff at London’s Heathrow airport was suspended

IAG shares are now up 3.5%, adding to earlier gains, after Unite reported the two sides have reached a deal over pay.

Heathrow check-in staff dispute suspended as BA makes improved pay offer

The industrial dispute affecting British Airways’ check-in staff at Heathrow airport has been suspended after the company made a “vastly improved” pay offer, the Unite union says.

Unite has announced that BA has made an increased pay offer for check-in staff, following talks yesterday.

Unite will now ballot members involved in the dispute on the proposed offer, with the dispute suspended.

Unite general secretary Sharon Graham said:

We welcome that BA has finally listened to the voice of its check-in staff.

Unite has repeatedly warned that pay disputes at BA were inevitable unless the company took our members’ legitimate grievances seriously. I pay tribute to, and stand with, our members who have fought hard to protect their pay.”

Those strikes were expected to cause disruption over the summer holiday period:

A simple reading of post-war UK fiscal history suggests that the “inevitable periodic shocks” to come could push the national debt to nearly 320% of GDP in 50 years -- over triple current levels.

So warns the Office for Budget Responsibility in today’s report, as it explains why it believes Britain faces an unsustainable debt burden unless future governments raise taxes.

It’s tweeted the key charts:

UK’s public finances on 'unsustainable' path, as inflation threatens recession

The UK’s public finances are on an ‘unsustainable’ long-term path, the UK’s independent fiscal watchdog has warned today.

In its latest assessment, The Office for Budget Responsibility says the public finances will come under more strain from an aging population, and the loss of existing motoring taxes as petrol and diesel cars are phased out.

The report is a timely warning of the challenge that current government, and future administrations, face as they steer the public finances through inevitable future shocks, while managing multiple slow-building pressures.

The OBR warns that government debt levels could rise to more than double GDP unless there are tax rises or spending cuts.

That could dampen talk of tax cuts from those keen to become the next prime minister.

OBR long-term projections of UK public sector net debt
OBR long-term projections of UK public sector net debt Photograph: OBR

The OBR says:

Our long-term projections show debt rising to over 100 per cent of GDP by 2052-53 and reaching 267 per cent of GDP in 50 years if upward pressures on health, pensions and social care spending, and the loss of motoring taxes, are accommodated.

Bringing debt back to 75% of GDP – the level at which it stabilised in the Government’s pre-pandemic March 2020 Budget – would need taxes to rise, spending to fall, or a combination of both, amounting to a 1.5% of GDP additional tightening (£37 billion a year in today’s terms) at the beginning of each decade over the next 50 years.

UK government borrowing

The shorter term outlook is worrying too, with Russia’s invasion of Ukraine intensifying geopolitical tensions and driving energy prices up, and fuelling worries about cyberwarfare.

The OBR warns that soaring energy prices and inflation threaten to tip the UK into recession:

Many threats remain, with rising inflation potentially tipping the economy into recession, continued uncertainty about our future trading relationship with the EU, a resurgence in Covid cases, a changing global climate, and rising interest rates all continuing to hang over the fiscal outlook.

The fiscal watchdog also cites surging energy costs as a threat:

The recent more than doubling of gas and oil prices and the rise in inflation to rates not seen since the energy crises of the 1970s have underscored the economic and fiscal risks associated with the UK’s continued dependence on fossil fuel imports.

And it adds that Russia’s invasion of Ukraine has prompted a reappraisal of levels of defence spending across Western countries, and highlighted fears of a cyberwarfare.

Jet2 says it has awarded all its staff a pay increase of 8%, which should help them through the cost of living squeeze.

The airline will also pay all colleagues an extra £1,000 at the end of the summer.

The pound has now risen back over the $1.20 mark, up almost a cent today.

That’s still only its highest level since Tuesday, though...

The pound vs the US dollar
The pound has fallen steadily against the US dollar in the last three months Photograph: Refinitiv

Chris Beauchamp, Chief Market Analyst at IG Group, says sterling’s outlook is still ‘bleak’:

The pound has been looking for any excuse to bounce against the dollar following its drubbing lately.

Boris’ decision to go removes at least some of the uncertainty, and means that a snap election is off the cards. Longer-term the outlook is still bleak for the pound, so this bounce is unlikely to last.

Updated

Guy Foster, chief strategist at wealth manager Brewin Dolphin, agrees that the impending departure of Boris Johnson will have a limited impact on London’s stock market.

“Although this Westminster event may seem momentous, it has very little impact in the financial markets. The impact on treehouse builders, Westminster-based wine merchants and flat renovators is not discernible in the performance of the FTSE 100.

The prime minister’s impending departure, by hook or by crook, was very much anticipated. Furthermore it is not obviously going to lead to a dramatic change in policy.

The most one could say is that a new Conservative prime minister would likely have a fiscally conservative approach than the outgoing one, but we don’t know to what extent.

Globally operating companies will be largely completely immune to this news, Foster adds:

For more domestically focussed companies it’s not clear whether there will be any material impact.

Movements in the pound have been marginal and UK government bonds are outperforming those in other European states but gas supplies and the war in Ukraine remains the most critical determinant of relative European bond performance.”

A surge in mining companies, rather than Boris Johnson’s looming resignation, is the main factor pushing up shares in London.

Glencore (+7.5%), Anglo American (+7.4%) and Antofagasta (+5.6%) are leading the FTSE 100 risers, followed by oil giant BP (+5.6%).

They’ve lifted the blue-chip FTSE 100 index up nearly 1.3%, or 90 points, to 7196, as it claws back losses during Tuesday’s slide.

Reuters says hopes of fresh stimulus measure in China are lifting markets:

Bloomberg reported, citing unnamed sources, that China’s Ministry of Finance was considering allowing local governments to sell 1.5 trillion yuan (£186bn) of bonds in the second half, an acceleration of infrastructure funding aimed at shoring up the economy.

UK property prices rise at the fastest rate for 18 years - full story

House prices in the UK rose at the fastest annual rate in 18 years last month as demand – especially for larger homes – continued to outstrip the number of properties on the market.

Halifax, one of the country’s biggest mortgage lenders and part of Lloyds Banking Group, said the market “defied any expectations of a slowdown”, with prices rising year on year in June by 13%, the highest since late 2004.

Prices rose 1.8% compared with May, which was the biggest monthly rise since early 2007.

A typical property now costs £294,845, another record high, as prices continue to rise despite the cost of living crisis. House prices have risen every month over the past year and have climbed by 6.8% so far this year, or £18,849 in cash terms.

Russell Galley, the managing director of Halifax, said:

“The supply-demand imbalance continues to be the reason house prices are rising so sharply. Demand is still strong – though activity levels have slowed to be in line with pre-Covid averages – while the stock of available properties for sale remains extremely low.

Here’s the full story:

And we have reaction earlier in the blog, from here.

Updated

UK companies have lifted their expectations for pay rises, according to a Bank of England survey.

British employers’ expectations for pay growth in the coming 12 months increased to 5.1% from 4.8% in May.

The survey also found that recruitment difficulties are still widespread, with 88% of firms finding it harder to recruit new employees compared to normal.

Two-thirds reported that it was ‘much harder’, which was the highest since the question was first asked in October 2021.

Overall levels of business uncertainty edged up in June, with Brexit overtaking Covid as a leading worry for businesses.

The BoE says:

For the first time since the onset of the pandemic, Brexit was a larger source of uncertainty for panel members than Covid. 25% of respondents cited Brexit as a top-three source of uncertainty in June, up 5 percentage points on May.

Yesterday, BoE chief economist Huw Pill pledged the central bank would “deliver inflation back to its 2% target”.

Although Johnson has agreed to step down as Conservative leader, he wants to stay on as PM until the autumn when a new Tory leader is in place.

That’s not guaranteed -- two ex-ministers have told the Guardian they think it not possible for Johnson to stay till then, so a caretaker PM is needed.

Matthew Ryan, head of market strategy at global financial services firm Ebury, says that hopes of avoiding “an ugly exit from Downing Street” did give the pound a small lift:

So far, GBP has taken the political uncertainty in its stride, and actually posted modest gains this morning on the headlines that Johnson was planning to resign.

Markets were already fully expecting him to go, but news of an imminent resignation, and the avoidance of a likely messy and potentially ugly removal from office, has given the pound a modest leg up.

But until a clear favourite to replace Johnson emerges, the City won’t have a clear understanding of potential policy implications.

And even then, sterling’s value will be driven more by UK recession concerns and Bank of England monetary policy, Ryan adds.

The City will be relieved that Boris Johnson is to quit, says Walid Koudmani, chief market analyst at financial brokerage XTB.

“The resignation of Boris Johnson as UK PM will breath a sigh of relief for UK investors as it curtails the uncertainty of a government in name only.

We saw some instant buying in GBP [the pound] which gained against the Euro as investors reacted to the news of his impending resignation.

Sterling is up 0.25% against the euro this morning to its highest since mid-June at €1.174, as well as gaining against the dollar.

Koudmani adds, though, that Johnson’s successor faces a massive challenge:

Make no mistake however, the GBP remains severely weak due to the dire state of the UK economy which is underperforming its peers, likely to enter into a recession while the Bank of England refuses to hike interest rates aggressively to deal with the escalating inflation.

The new Prime Minister - whoever that is - has a massive job on their hands.”

Updated

Pound rises as Boris Johnson agrees to resign

Sterling has rallied a little on reports that Boris Johnson is to resign.

The pound has risen to $1.1980, up half a cent this session, as the news breaks that Johnson is expected to resign today.

His office says he will make a statement to the country.

This follows a further flurry of ministerial resignations this morning (including Brandon Lewis, Northern Ireland secretary), and the blow of newly appointed chancellor Nadhim Zahawi called on Johnson to quit.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Refinitiv

But that still leaves sterling near its lowest level since the pandemic, dragged down by recessions concerns:

The pound vs the US dollar over the last two years
The pound vs the US dollar over the last two years Photograph: Refinitiv

The blue-chip FTSE 100 index is having a solid morning too, up 1.2% so far.

Naeem Aslam of Avatrade says:

Sterling has moved higher on the back of the news that Broexit is happening—Boris is going to leave the office. There is no doubt that Boris Johnson has failed the public on many occasions and the fact that he will be leaving is helping the currency and FTSE 100 for now.

However, political uncertainty has increased as a large number of political cards will come into play where the new Prime Minister may try to persuade public by adopting more loose fiscal policy which could make the BOE’s job even more difficult which is trying to bring it down.

Andrew Sparrow’s Politics Liveblog has all the action on another historic day in Westminster:

Updated

Jet2 also predicted that holiday prices could be squeezed in future, as travellers will have less money to spend on trips:

Inflationary pressures coupled with the uncertain UK economic outlook for consumers, lead us to conclude that in the medium term prices are likely to come under some pressure.

However, it agues it has “the right product for these tougher times”.

The end-to-end package holiday is a higher yielding, resilient and popular product in difficult economic times and the Mediterranean and Canary Islands are evergreen destinations where people absolutely want to go.

The control of our own seat supply and our frequency of flying, allow us to offer truly variable duration holidays, critical in allowing our Customers the ability to flex their holiday arrangements to suit their individual budgets.

Jet2 blasts UK airports over 'inexcusable' failures

A Jet2 Boeing 737-8K5 at Manchester Airport.
A Jet2 Boeing 737-8K5 at Manchester Airport. Photograph: Peter Byrne/PA

Airline Jet2 has launched a stinging attack on British airports, saying they had been ‘woefully ill-prepared’ for the return to passengers this summer.

Philip Meeson, Jet2’s executive chairman, said airports’ failure to recruit sufficient staff ahead of the rebound in demand was “inexcusable”, leading to misery for customers.

Meeson pinned the blame firmly on the airports, and their suppliers, for this summer’s travel chaos, which has led to many thousands of flight cancellations.

Meeson also heavily criticised a number of key suppliers for poor planning, including on-board caterers and providers of passenger-mobility services.

He told the City that:

Broadly, most of our 10 UK Base Airports have been woefully ill-prepared and poorly resourced for the volume of customers they could reasonably expect, as have other suppliers, such as Onboard Caterers and providers of Airport PRM (Passengers with Reduced Mobility) services.

Inexcusable, bearing in mind our flights have been on sale for many months and our load factors are quite normal.

In its preliminary results for the last year, Meeson explains:

Theirs and the Ground Handling suppliers’ often atrocious customer service, long queues for Security Search, lack of Staff and congestion in Baggage Handling Areas, and the consequent airport congestion, together with the frequent lack of onboard catering supplies, have each contributed to a very much poorer experience at the start and finish of our Customers’ holidays than they were entitled to expect.

Inevitably, these customer-facing challenges have put extra pressure on our Colleagues, both in the UK, onboard our aircraft and in our holiday destinations.

This difficult return to normal operations has occurred simply because of the lack of planning, preparedness and unwillingness to invest by many Airports and associated Suppliers.

Updated

Currys passes rising costs onto shoppers

Electricals goods retailer Curry’s has warned that the cost of living squeeze is likely to hit sales, as it passes on rising costs onto customers.

Curry’s reported this morning that the cost of goods is rising:

On most products we pay in local currency when the goods arrive in our markets, the price increases we are seeing at the moment will be felt by all of our competitors as well.

These costs are passed on to consumers, but we seek to proactively mitigate through providing similar, different specification products at alternative price points.

Curry’s also flags that its operating costs are rising faster than it expected, including dramatic increases in energy and fuel costs.

Finally, inflation is very likely to create a headwind to consumer spending and impact sales, particularly in some of our more discretionary categories, Curry’s reported.

Despite these pressures, Curry’s pre-tax profits almost quadruped to £126m in the year to the end of April.

Shares in Curry’s have jumped 7.5% in early trading. Victoria Scholar, head of investment at Interactive Investor, explains:

Currys is defying the gloomy headlines, jumping almost double digits despite lowering its profit forecast for this year and next year amid uncertainty around the outlook for UK consumer spending.

Investors were encouraged by Currys’ full-year 2022 top and bottom line beats. Adjusted EBIT came in at £274 million versus expectations for £245 million while profit before tax hit £186 million, also ahead of consensus. Full-year group sales rose 24%, higher than expected thanks to the return to bricks and mortar shopping post pandemic.

Despite the uncertain macroeconomic backdrop, Currys said encouragingly that the size of the overall tech market is larger than pre-pandemic and the company announced a full-year dividend of 3.15p versus expectations for 3.10p. However it wasn’t all good news. Free cash flow came in below expectations and its full-year 2023 profit before tax guidance hit £130-150 million, below expectations for £145 million amid the UK’s growing economic uncertainty.

Updated

Ladbrokes owner cuts online betting outlook as customers spend less

A pedestrian walks past a branch of Ladbrokes in London.

The cost of living squeeze is hitting online betting.

Ladbrokes and Coral betting shops owner Entain has seen a 7% drop in online net gaming revenue in the second quarter of this year, as customers cut back.

Entain, which owns bwin and partypoker, has cut its forecasts for online gaming revenue this year, and warned that the macro-economic outlook is uncertain:

A weaker macro-economic environment is reducing customers’ rate of spend, moderating overall Online growth versus our previous expectations

Entain’s online gaming revenues are now expected to be flat for the full-year, down from a previous forecast of mid-to-high single-digit growth.

Gambing firms profited from a surge in online betting during the pandemic, from customers stuck at home during lockdowns. But now, rising fuel and food costs are forcing customers cut spending on non-essential items.

Entain’s shares have dropped 3.7% in early trading.

Updated

Halifax’s house price index shows a much larger increase than rival Nationwide’s report last week (which flagged a slowdown in June).

EY ITEM Club Martin Beck predicts housing inflation must surely run out of steam soon - but house prices are unlikely to fall, saying:

  • A significant 1.8% monthly increase in the Halifax measure of house prices in June was well above expectations. June’s increase pushed up annual price growth to 13%, the highest since late 2004.

  • While still-rapid growth in house prices is bad news for first-time buyers, the boost to home-owners’ wealth and sentiment from rising prices might offer some useful support to consumer spending amid cost of living pressures.

  • Given increasingly stretched affordability and rising mortgage rates, the EY ITEM Club believes house price inflation must surely run out of steam soon. But cost of living pressures are being borne disproportionately by low-income, primarily renting households, not better-off home owners. And low unemployment will reduce the risk of forced selling. So house prices are far more likely to see slower growth than a decline.

Northern Ireland and Wales see fastest house price inflation

Here’s a regional breakdown of UK house price growth from Halifax:

  • Northern Ireland once again topped the table for annual house price inflation, up by 15.2%, equating to an average property price of £187,833.

  • Wales also continues to record a strong rate of annual growth, up by 14.3%, with an average property cost of £219,281.

  • Meanwhile the South West saw the highest annual house price growth of any region in England, at 14.2%, where a typical home now costs £308,128.

  • Scotland too saw an increase in the rate of annual house price inflation, up to 9.9%. A Scottish home now costs an average of £201,549, breaking through £200,000 for the first time in history.
  • London continues to lag behind other regions in terms of annual house price inflation (+7.1%), though with an average property price of £547,031 it remains by far the most expensive place in the UK to buy a home.

Updated

Shares in Persimmon have dropped 5% in early trading, after telling the City it built fewer homes than expected in January-June.

Persimmon: House completions hit by delays and shortages

Planning delays, problems obtaining materials, and a shortage of construction workers slowed the number of houses which Persimmon it could build this year.

Britain’s biggest housebuilder reports that it completed 6,652 houses in the first half of 2022, slightly less than expected.

That’s down from 7,406 in the first half of 2021, pulling Persimmon’s revenues down to £1.69bn from £1.84bn.

But despite this, Persimmon expects profits for H1 to be ‘modestly above’ its expectations.

Dean Finch, Persimmon’s chief executive, said:

As we rebuild our outlet position, delays in the planning system, disruption in material supply chains and challenges in securing labour have impacted completions in the period.

We anticipate, however, profit at the half year to be modestly above our expectations reflecting strong demand and positive pricing conditions.

Updated

The sheer lack of houses on the market has kept driving prices up, experts agree.

Here’s Jeremy Leaf, north London estate agent and a former RICS residential chairman:

‘Despite concerns over the rising cost of living and interest rates, the excess demand over supply continues to hold sway and is driving activity.

The number of appraisals and listings is increasing but not fast enough to keep up as sellers try to take advantage of the market peak, or at close to it as possible, but transactions are slowing and lengthening.

‘Looking forward, we expect the market won’t be immune to changes in the wider economy and are already seeing signs of a rebalancing but no evidence of major corrections in prices for the time being at least.’

And Jason Tebb, CEO of property search website OnTheMarket.com:

The supply-demand imbalance is behind the continued rise in prices, although this is slowly improving as more stock becomes available. Signs of an inevitable, yet subtle, rebalancing of the market, are already evident.

The ‘new normal’, an elevated version of the pre-pandemic market, continues, with serious property seekers still determined to move.”

Some snap reaction:

House price growth likely to slow, Halifax adds

Despite continuing to climb in June, house prices inflation will surely slow as the squeeze intensifies.

Halifax managing director Russell Galley says:

“Of course, the housing market will not remain immune from the challenging economic environment. But for now it continues to demonstrate – as it has done over the last couple of years – the unique combination of factors impacting prices.

One of these remains the huge shift in demand towards bigger properties, with average prices for detached houses rising by almost twice the rate of flats over the past year (+13.9% vs +7.6%).

In time though increased pressure on household budgets from inflation and higher interest rates should weigh more heavily on the housing market, given the impact this has on affordability. Our latest research found that the strong rise in property prices over the last two years, coupled with much slower wage growth, has already pushed the house price to income ratio up to a record level.

So while it may come later than previously anticipated, a slowing of house price growth should still be expected in the months ahead.”

Updated

Introduction: UK property prices up 1.8% in June despite squeeze

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

UK house price inflation accelerated last month despite the cost of living squeeze, mortgage lender Halifax has reported this morning.

Halifax’s latest house price index shows that prices jumped by 13% in the year to June -- the fastest since late 2004 -- up from 10.7% in May. This took the average price to a new record high of nearly £295,000, even as interest rates rose and inflation surged ahead of incomes.

British housebuilder Persimmon also sounds confident this morning, forecasting robust demand for new homes, despite predictions of an impending slowdown in the housing sector.

In monthly terms, Halifax says, prices rose by 1.8% after a 1.2% increase in May from April as the “market shows resilience”. That’s the fastest growth since 2007.

Prices have now risen for 12 months in a row, on Halifax’s index, points out property agent Emma Fildes of BrickWeaver.

Halifax says:

  • • House prices increased by 1.8% in June, the twelfth consecutive monthly rise
  • • Annual growth rate of 13% is the highest since late 2004
  • • Typical property now costs £294,845
  • • Northern Ireland continues to post the strongest growth in the UK.

Russell Galley, Managing Director, Halifax, says prices are being supported shortages of properties, and by wealthier families, who are not being hit as hard by the cost of living crisis.

“The UK housing market defied any expectations of a slowdown, with average property prices up 1.8% in June, the biggest monthly rise since early 2007. This means house prices have now risen every month over the last year, and are up by 6.8% or £18,849 in cash terms so far in 2022, pushing the typical UK house price to another record high of £294,845.

The supply-demand imbalance continues to be the reason house prices are rising so sharply. Demand is still strong – though activity levels have slowed to be in line with pre-Covid averages – while the stock of available properties for sale remains extremely low.

Property prices so far appear to have been largely insulated from the cost of living squeeze.

This is partly because, right now, the rise in the cost of living is being felt most by people on lower incomes, who are typically less active in buying and selling houses. In contrast, higher earners are likely to be able to use extra funds saved during the pandemic, with latest industry data showing that mortgage lending has increased by the highest amount since last September.

Also coming up today

We’re poised for the Competition and Markets Authority to release its report on the fuel retail market.

The inquiry, requested by business secretary Kwasi Kwarteng last month, will focus on whether the 5p fuel duty cut announced in March by former Chancellor Rishi Sunak was being passed on to consumers.

After hitting its lowest level since the start of the pandemic yesterday, the pound is hovering around $1.195 this morning as investors watch Boris Johnson grip desperately onto power.

European stock markets are set for a strong open, having dropped sharply earlier this week on growing concerns of a recession.

Britain’s fiscal watchdog, the Office for Budget Responsibility, publishes an annual report on the long-term sustainability of the public finances and the fiscal risks facing the UK.

That’ll show the challenge facing new chancellor Nadhim Zahawi, as he hints that a planned rise in corporation tax could be reduced or ditched.

Sainsbury’s shareholders will vote on whether the UK’s second largest supermarket should become a Living Wage employer, at its AGM today.

The resolution, backed by a coalition of investors including Legal & General Investment Management, Coutts & Co, and the Coal Pensions Board, calls on Sainsbury’s to pay the independently set living wage for all staff and contracted workers.

Sainsbury’s has raised pay for its 171,000 direct employees across more than 1,400 stores in the UK to the living wage, but not contractors.

The agenda

  • 7am BST: Halifax index of UK house prices in June
  • 9.30am BST: UK’s Office for Budget Responsibility publishes its Fiscal risks and sustainability report
  • 9.30am BST: ONS weekly real-time indicators of economic activity and social change
  • 11am BST: Sainsbury’s AGM begins
  • 12.30pm BST: ECB publishes accounts of its last monetary policy meeting
  • 1.30pm BST: US trade data for May
  • 5pm BST: Bank of England chief economist Huw Pill speech on ‘The Economic situation and monetary policy’.

Updated

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