Ireland emerges from technical recession; UK house buyers hit by rise in mortgage payments – business live

Just in: German inflation rise slightly this month.

On an EU-harmonised basis, German consumer price inflation rose to 2.4% this month, up from 2.3% in March.

On a non-harmonised basis, though, German inflation was flat at 2.2%, with services inflation slowing to 3.4% but goods inflation rising to 1.2%.

Core inflation, which strips out food and energy, eased to 3% in April from 3.3% in March.

Inflation in Spain has risen, as Madrid’s government cut back support for energy bills.

Spanish consumer price inflation rose to 3.3% per year in April, up from 3.2% in March.

Inflation was pushed up by gas prices – which rose this month but fell in April 2023 – after Spain’s government stopped measures taken to ease rising inflation after Russia’s invasion of Ukraine two years ago.

Food prices also rose.

Core inflation, which strips out food and energy prices, fell to 2.9% from 3.3% in March.

This data, and Germany’s CPI report due in half an hour, will feed into the latest eurozone inflation data due at 10am tomorrow.

Newsflash: Ireland has escaped a technical recession, after its economy returned to growth this year driven by its IT sector.

Ireland’s GDP is estimated to have risen by 1.1% quarter-on-quarter in January-March, new data from the Central Statistics Office shows. Growth was driven mainly by an increase in the Information & Communication sector.

That follows a 3.4% tumble in GDP in the final three months of 2023.

Enda Behan, statistician in the National Accounts Data Collection and Quality Division, said:

“In today’s release, GDP is estimated to have expanded by 1.1% in Q1 2024 in volume terms when compared with Q4 2023.

This was driven by an increase in the multinational dominated sector of Information & Communication in Q1 2024. GDP is estimated to have fallen by 0.8% when compared with the same quarter of 2023.

Ireland’s GDP fell in every quarter of last year, shrinking by 3.4% in Q1, 0.1% in Q2 and 2.5% in Q3.

But….GDP is not a very precise way of measuring the Irish economy, as it is dominated by multinational companies based in the Republic.

Ireland’s government favours another measures, called modified domestic demand, which excludes the large transactions of foreign corporations. Unfortunately we did not have new MDD data today.

Just in: economic sentiment has fallen marginally in the EU and the euro area, as Europeans fret about their employment prospects.

The Economic Sentiment Indicator declined in the EU (by 0.3 points to 96.2) in April, and by more within the eurozone (where it fell by 0.6 points to 95.6).

The employment expectations gauge fell slightly more sharply.

Confidence among industrial firms, and among services companies, both fell; consumer confidence inched up, but remained in negative territory.

Within individual countries, economic sentiment deteriorated significantly in France (-4.8 points) and more moderately in Italy (-1.3 points), while it improved markedly in Spain (+2.3), Germany (+1.5) and Poland (+1.5).

The ESI remained broadly stable in the Netherlands (rising by 0.3).

Tomorrow we learn whether the eurozone returned to growth, when GDP data for the first quarter of 2024 is released….

New inflation data today has shown that prices rose in four German states this month.

In Bavaria, the annual inflation rate rose in April to 2.5% from 2.3% in March, in Brandenburg it rose to 3.0% from 2.8%, in Saxony it rose to 2.7% from 2.5%, and in Hesse it rose to 1.9% from 1.6%.

Inflation didn’t rise everwhere, though; it was flat at 2.3% in North Rhine-Westphalia, and fell to 2.1% from 2.3% in Baden-Wuerttemberg.

This tees up Germany’s inflation report, due at 1pm today, which is expected to show a rise to 2.3% from 2.2% in March.

The London stock market has begun the new week on the front foot, jumping to a new alltime high.

The FTSE 100 share index jumped by 45 points, or over 0.5%, to a new intraday high of 8185 points.

Prudential are among the top riser, up 3%, after fellow Asia-Pacific insurer AIA Group reported strong results.

UK retailers Frasers are up 3.1% after announcing a new share buyback programme this morning, while Anglo American are also among the risers on speculation that BHP may make a higher bid.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

‘’Sentiment is upbeat at the start of the week, fuelled by relief that inflationary pressures in the US aren’t as bad as feared, and hopes return that a ceasefire could be negotiated in the Middle East. The FTSE 100 has scaled fresh heights, with another sprint higher in early trade.

April has been a record-breaking month for the blue-chip index, with a glass-half full sentiment dominating. The Footsie has gained more than 11% over the last six months, with super-patient investors finally rewarded by this spurt of growth. The weaker pound against the dollar has been a key player in the power surge, with the greenback gaining ground against a basket of currencies on the latest interest rate expectations.

Investor optimism has been buoyed by a rally on US markets on Friday, and developments in the Middle East. Negotiators from Israel and Hamas expected to meet in Egypt, while US Secretary of State Antony Blinken ups diplomatic efforts at the World Economic Forum in Riyadh, Saudia Arabia.

Prices for smaller homes such as flats have been increasing at a faster rate than bigger properties amid affordability constraints, according to lender Halifax this morning.

Halifax reports that the “race for space” that was seen during the coronavirus pandemic has now gone into reverse, with buyers targeting smaller, cheaper homes.

In the year to February, the average price of a flat increased by 2.7%, while the average terraced property value rose by 2.6%, Halifax said.

Prices for semi-detached and detached homes increased at lower rates, rising by 1.7% and 2.0% respectively.

Amanda Bryden, head of Halifax Mortgages, said:

“As interest rates have stabilised and buyers adjust to the new economic reality of owning a home, one way to compensate for higher borrowing costs is to target smaller properties.

“This is especially true among first-time buyers, who have proven to be resilient over recent years, and now account for the largest proportion of homes purchased with a mortgage in almost 30 years.

“We see this reflected in property prices for the first few months of this year, with the value of flats rising most sharply, closing the ‘growth gap’ on bigger properties that’s existed for most of the last four years.”

Zoopla’s calculations showing a rise in mortgage costs come at a time when several mortgage lenders are increasing rates, blaming “market uncertainty”.

The City currently expect just two interest rate cuts this year, less than they expected at the start of 2024, with the first cut fully priced in for September.

Tom Bill, head of UK residential research at estate agents Knight Frank, says

“Housing market activity has rebounded over the last year but the shock of the mini-Budget was still reverberating during the early months of 2023.

The pipeline of sales has grown since Christmas, largely as positivity from January translates into spring listings. Since then, the prospect of the first rate cut since March 2020 has become more remote with each release of economic data, which means mortgage rates have edged back up and house prices are once again under downwards pressure.”

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

A year and a half on from the mini-budget turmoil, UK households are still paying sharply more when they take out a mortgage.

New research from property website Zoopla this morning shows that higher mortgage rates are adding to the affordability pressures on buyers, and dragging on house price inflation.

Zoopla has calculated that the average home buyer taking out a 70% loan to value mortgage now face annual mortgage repayments that are 61% higher today than three years ago (in March 2021) before mortgage rates started to rise.

That’s because mortgage rates are around 4.5% today compared to below 2% in March 2021, meaning average annual mortgage repayments have risen from £7,100 to £11,400.

However, only two-thirds of this increase is driven by higher mortgage rates, with a third down to the fact that house prices are 13% higher than 3 years ago, Zoopla adds.

Londoners (where property prices are highest), face the largest increase, of £7,500 per year.

Buyers in the South West, South East and East of England face paying at least £5,000 per year more.

Across other regions and countries of the UK, the increase is lower, at between £2,350 and £3,900 a year.

Mortgage rates had been rising in 2022 as the Bank of England lifted interest rates, and the City anticipated further tightening. But costs then jumped after the unfunded tax cuts in the mini-budget of September 2022 alarmed investors, prompting a selloff in government bonds used to price fixed mortgages.

Liz Truss, though, last week declined to apologise for the sharp rise in interest rates during her time in office, pointing out that mortgage rates have gone up across the world.

But, UK government bond yields (which rise when prices fall) certainly did spike through September 2022:

Zoopla’s data also shows that house sales volumes are up 12% year on year, in the four weeks to 21 April, putting the market on track for 1.1m sales in 2024, up 10% on last year

But prices dipped by 0.2% month-on-month, while almost two thirds (64%) of all homes are in local markets where prices are lower than a year ago.

Factors including higher mortgage rates and stamp duty are behind ongoing price falls across the south of England, Zoopla reckons.

Richard Donnell, executive director at Zoopla, says the market is adjusting to higher borrowing costs; he doesn’t believe prices will start to rise as buyers face much higher mortgage repayments than in the recent past, so sellers should remain realistic.

“The rebound in sales being agreed continues for a fourth month as mortgage rates have fallen, consumer confidence improves and home buyers have much greater choice of homes for sale. The pipeline of sales is growing and we expect 100,000 more people to move home in 2024 than last year.

Also coming up today

Ocado faces a showdown with shareholders at its annual meeting today, over a new pay scheme that could hand boss Tim Steiner a bonus share award of up to £15m.

While in Whitehall, senior officials are worried that Thames Water’s financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the mini-budget.

Officials in the Treasury and the UK’s Debt Management Office fear that, unless the UK’s biggest water company is renationalised as soon as possible, “prolonged uncertainty” about its fate could “damage confidence in UK plc at a sensitive time”….

And in the markets, the FTSE 100 is set to open higher, after its best week since last September.

The agenda

• 7am BST: Sweden’s GDP report for Q1 2024

• 8am BST: Spanish inflation report for April

• 10am BST: Eurozone consumer confidence, and economic & industrial sentiment data for April

• 11am BST: Ireland’s GDP report for Q1 2024

• 3.30pm BST: The Dallas Fed manufacturing index