UK house prices will fall by up to 4% next year, predicts Halifax

House prices in the UK are predicted to fall by between 2% and 4% next year, according to Halifax, which is part of Lloyds Banking Group, the country’s biggest mortgage lender.

Pressure on household finances from inflation and higher interest rates has made a house purchase less affordable for many people, leading to fewer completions. Halifax expects a partial recovery in market confidence and transaction volumes in 2024, as interest rates ease and affordability improves.

Property prices held up better than expected over the last year, falling by just 1.0% on an annual basis, to now sit at £283,615. This resilience – which owes more to the shortage of available properties for sale than strength of demand among buyers – means average house prices end the year just 3% down on August 2022’s peak (£293,025) but £44,000 above pre-pandemic levels.

Kim Kinnaird, director of Halifax Mortgages, explained:

To some extent this masks the fluctuations we’ve seen in the housing market throughout 2023. As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.

And it’s a mixed picture across the country too, with some areas still seeing annual growth, such as Northern Ireland at +2.3%, while in regions like the South East of England house prices continued to drop (-5.7%).

Higher interest rates, and the resulting squeeze on affordability, gave many potential home buyers pause for thought when considering making a move over the last year. Mortgage approvals were down a quarter across the market, while overall housing transactions were a little under 20% down – both the lowest in at least a decade.

As homeowners were hesitant to move, there was a natural reduction in the stock of available properties. Crucially, with unemployment levels only seeing a marginal increase, and many homeowners protected from the immediate impact of rising interest rates by fixed rate deals, there doesn’t appear to have been a spike in the number of ‘forced sales’ – those who feel compelled to sell but would prefer not to, typically triggered by financial pressures.

Key events

Cop28 president says his firm will keep investing in oil

The president of the Cop28 climate summit will continue with his oil company’s record investment in oil and gas production, despite coordinating a global deal to “transition away” from fossil fuels, reports our environment editor Fiona Harvey in Dubai.

Sultan Al Jaber, who is also the chief executive of the United Arab Emirates’ national oil and gas company, Adnoc, told the Guardian the company had to satisfy demand for fossil fuels.

“My approach is very simple: it is that we will continue to act as a responsible, reliable supplier of low-carbon energy, and the world will need the lowest-carbon barrels at the lowest cost,” he said, arguing that Adnoc’s hydrocarbons are lower carbon because they are extracted efficiently and with less leakage than other sources.

“At the end of the day, remember, it is the demand that will decide and dictate what sort of energy source will help meet the growing global energy requirements,” he added.

He referred to the findings of the Intergovernmental Panel on Climate Change that the world will still need a small amount of fossil fuel in 2050, even when reaching net zero greenhouse gas emissions, which is required to limit global temperature rises to 1.5C (2.7F) above pre-industrial levels.

High-end house sales are up in London, with 175 fetching £10m

Almost 200 homes in London have been sold for £10m in the past year as the super-rich’s pandemic-inspired desire for a place in the country wanes compared to their wish for swish bolt-holes in the capital.

A total of 175 homes were sold for £10m-plus in the 12 months to November 2023, the highest number for eight-years, according to research by the estate agent Knight Frank.

In 2014, when high-end sales leapt just before the introduction of higher rates of stamp duty for properties above £1m, 225 £10m-plus home were sold.

More than £3.4bn was spent on the properties, referred to as “super prime” by estate agents. That’s the highest combined figure since 2014 when £4.2bn was spent.

The figure for the full calendar year of 2023 is likely to be even higher as a number of extremely pricey sales have recently completed. This week Indian billionaire Adar Poonawalla, known as “the vaccine prince” due to his family’s vast vaccine factories, agreed to buy a mansion in Mayfair for £138m.

Ofgem ponders extra £16 charge for households to protect energy suppliers

Mark Sweney

Britain’s energy regulator has launched a consultation on a plan proposing that households pay an extra £16 on top of their energy bills to help protect suppliers from going bust due to rising bad debt.

Ofgem said that the extra charge, which would be levied at £1.33 a month on bills paid between April next year and March 2025, is to “protect the market and consumers” after figures showed energy debt has hit a record £3bn.

The level of bad debt, which refers to the amount of money owed by customers that is unlikely to realistically be repaid, has soared due to increases in wholesale energy prices and the wider cost of living crisis putting pressure on household finances.

Tim Jarvis, director general for markets at Ofgem, said:

We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels.

The record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.

Ofgem said this one-off move would be less costly to consumers than if energy suppliers were forced out of business. Any extra costs would not be passed onto customers who use prepayment meters under the regulator’s proposals.

A lit ring on a gas hob. Photograph: Yui Mok/PA

Introduction: UK consumer confidence rises; China economy on shaky ground

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

Consumer confidence in the UK edged higher this month, as people became more optimistic about the year ahead. GfK’s consumer confidence index rose two points to -22.

All five sub-measures showed modest improvement. The personal finance situation for the coming year ticked up 1 point to -2, while the outlook for the general economic situation also improved by 1 point, to -25. The major purchase index rose one point to -23.

Joe Staton, client strategy director at GfK, said:

Against the backdrop of flattening economic growth, interest rates at a 15-year high and price rises potentially eroding disposable income for years to come, the index shows a modest improvement this month.

Although the headline figure of -22 means the nation’s confidence is still firmly in negative territory, optimism for our personal finances for the next 12 months shows a notable recovery from the depressed -29 this time last year.

China’s economic recovery looks shaky amid weak demand and a lingering property crisis, putting more pressure on Beijing to come up with supportive policies. While industrial output and retail sales grew in November, both were flattered by comparisons with a year ago when Covid lockdowns held back activity. They weakened compared to more typical periods.

Larry Hu, head of China economics at Macquarie, said:

Discounting the base effect, it’s obvious that China’s economy slowed further in November, especially in terms of retail sales and property.

In Asia, shares have rallied, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.9%. Sharp declines in the dollar and US bond yields underpinned a Federal Reserve-fuelled rally, after the Fed signalled on Wednesday that it is moving closer to cutting rates.

However, the European Central Bank and the Bank of England pushed back on rate cut hopes, and the pound hit $1.276 against the US dollar, where it is still trading this morning, its highest level since late August.

Even so, Goldman Sachs now expects the first rate cut from the Bank of England in June, rather than August, after the monetary policy committee voted 6-3 to keep borrowing costs at a 15-yer high of 5.25% yesterday. Economists led by Sven Jan Stehn at the US investment bank said negative surprises to the central bank’s inflation forecasts will eventually prompt it to pivot towards rate cuts.

We expect the MPC to cut at a 25 basis points per meeting pace until policy rates reach 3% in June 2025.

European stock markets are set to open moderately higher.

Michael Hewson, chief market analyst at CMC Markets UK, explained:

After getting off to a strong start yesterday, with both the Dax and Cac 40 trading up at new record highs, European markets lost momentum after firstly the Bank of England, and then the European Central Bank decided to play the Grinch in contrast to the Fed’s Santa and push back on following a similar rate cut outlook, with the Dax finishing the session lower.

The contrast between the ECB’s tone and the Fed’s tone could not have been starker, and yet when you look at the numbers the divergence becomes even more bizarre.

Here we have a situation with the Fed announcing a dovish pivot with third-quarter GDP growth of 5% and headline CPI of 3.1%, while the ECB has maintained its hawkish stance when its two largest economies are showing a contraction in the third quarter, and its headline inflation rate is lower.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:

The European Central Bank and the Bank of England refused to join the Federal Reserve-thrown pivot party. Both Christine Lagarde and Andrew Bailey declined to discuss cutting interest rates judging a policy loosening too early as the inflation threat looms.

Bailey pointed at the possibility of another rate hike, as three MPC members favoured hiking rates, while the ECB announced to accelerate EXIT from the PEPP stimulus, and the Norges Bank popped up with a surprise rate hike.

The Agenda