The Bank of England’s interest rate hike may be nearing its end
According to The Guardian, investors and economists widely expect the Bank of England’s Monetary Policy Committee to maintain the key interest rate at 5.25% for the second consecutive time this Thursday. However, the Bank’s economic forecasts are more critical than the interest rate decision.
The Bank of England’s forecasts this week may indicate a potential economic slowdown in the UK in the months leading up to the next general election. With surveys and official data suggesting an increased risk of recession, the Monetary Policy Committee is expected to lower GDP expectations for the second half of this year and 2024. Additionally, the unemployment rate could rise from the 50-year low of 3.5% reached last year to approximately 5% in the coming months. This escalation increases the likelihood of an impending economic recession.
Andrew Bailey, the Governor of the Bank of England, has stated that borrowing costs will not decrease until inflation is under control after raising interest rates to the highest level since 2008. The UK faces the most severe inflation issue among the G7, with prices rising more than three times the 2% target.
House sales are expected to drop by nearly a quarter
The latest data reveals that due to rising mortgage rates, property markets in regions such as the South and East of England have seen price declines this year, primarily due to reduced demand for new homes.
According to research by the property portal website Zoopla, it is anticipated that around 80% of the market-registered house prices in the UK will have declined compared to the previous year by 2023. Prices in all markets in London, as well as in the South and East of England, have decreased, and more than half of the markets in other parts of England and Wales have also witnessed price declines, with nearly two-fifths of markets in Scotland experiencing price decreases. Elevated borrowing costs and pressure on household incomes have prompted some individuals to postpone moving or face difficulties in repaying mortgages.
Zoopla’s house price index shows that declining demand has led to a slowdown in price growth, dropping from 9.2% a year ago to 1.1% this year. This data marks the largest year-on-year price growth decline since 2009. However, the analysis suggests that the extent of the price decline has been relatively “moderate,” with price drops in all markets remaining under 5%. The number of housing sales in the UK has been more severely affected, with sales expected to drop by nearly a quarter in 2023 compared to the previous year, down to 1 million units. The data shows an increase in the proportion of cash buyers (individuals who can immediately pay for a property without the need for a mortgage).
The rise in interest rates has led to a sharp decline in household wealth
The recent increase in interest rates since the outbreak of the COVID-19 pandemic is considered the cause of the end of the wealth boom in the UK and has led to a quarter decrease in total household wealth.
A report by the Resolution Foundation, a think tank, and the asset management company Abrdn, suggests that this decline is primarily due to falling house prices and pension values, which together represent £4 out of every £5 of total wealth and have played a dominant role in the growth of national wealth over the past 40 years.
However, since the Bank of England began raising interest rates in December 2021, the values of both of these assets have declined. Although household total wealth in 2021 was equivalent to 840% of GDP, it has fallen to 630% of GDP this year.
House prices in the UK may continue to fall until 2025
The UK’s largest mortgage bank, Lloyds Banking Group, predicts a continuous decline in house prices in the UK until 2025. The group forecasts a 4.7% drop in house prices this year, and a further 2.4% decline next year, with a recovery expected to commence in 2025, when house prices are projected to rise by 2.3%.
Lloyds Banking Group, the owner of Lloyds Bank, Halifax Bank, and the Bank of Scotland, attributes the decrease in home sales to the increasing cost of borrowing.
While Lloyds states that house prices will fall, they believe long-term growth will remain steady, with house prices expected to rise by 0.6% by 2027. This forecast is based on the Halifax House Price Index and does not include data on cash buyers, who make up over 30% of total home sales.
William Chalmers, Chief Financial Officer of Lloyds Bank, told The Telegraph, “The property market in 2023 is somewhat softer compared to previous years. However, over the years, the property market has shown overall growth. We are reviewing it as part of these steps. Overall, if you go back to the period before the outbreak of the pandemic, there will be a net growth in the property market during that time.”
The heating crisis will affect more community families
The Latest data shows that approximately a quarter of households in social housing in the UK were forced to reduce heating during the past winter to manage soaring energy expenses.
During the last winter, approximately 240,000 households experienced temperatures in their homes below 18 degrees Celsius, compared to the previous year. This has raised concerns among fuel poverty charities, as escalating energy costs are perceived as a threat to people’s health.
These statistics were collected by the energy analytics company Switchee from smart thermostats installed in around 20,000 households in social housing projects. The survey found that 23.5% of people went without heating for at least a week last winter, up from 17.4% the previous year. The company analyzed billions of data points to provide insights into improving property energy efficiency for social housing landlords. However, their analysis revealed an increasing number of families living in cold homes.