UK interest rate cuts expected in 2024; German recession risks rise as factories struggle – business live

Kalyeena Makortoff

Ex-NatWest CEO Alison Rose has welcomed an apology from the UK’s information watchdog (see Monday’s blog) after it back-peddled on statements suggesting she had broken privacy rules by discussing Nigel Farage’s bank accounts with a BBC journalist.

Rose’s team lodged a complaint with the Information Commissioner’s Office (ICO) last month, after it originally said Rose had breached data protection laws but would not face any repercussions given that she had already resigned over the controversy.

The ICO on Monday apologised to Rose for suggesting she breached the law, despite the fact that she wasn’t the target of its investigation, and that it had not approached her for a response.

Rose responded on Tuesday, saying:

“The recent publication of the outcome of a complaint from Nigel Farage by the ICO, wrongly stated that I had broken data protection rules. On top of that, I had not even been aware of the existence of the investigation, nor been asked any questions.

The ICO has now acknowledged that they did not find that I breached data protection law. I welcome the clarification and accept the ICO’s apology.

The warning lights are flashing on Germany’s economy again today, as it teeters near recession.

German industrial production dropped by 1.4% month-on-month in September, following a 0.1% drop in August.

On an annual basis, German industrial output was down -3.7% year-on-year.

Carsten Brzeski, global head of macro at ING, says the “disappointing data release” suggests that Germany is likely to end the year in a technical recession (GDP fell in July-September, so another fall in Q4 would mean a recession).

Brzeski writes:

Germany’s macro horror show continues, and we are almost getting to the point where kids ask their parents where they were the last time Germany produced a series of positive macro data.

Today’s industrial production data is unfortunately no exception to the longer-lasting trend. German industrial production dropped once again in September for the fifth consecutive month.

Brzeski points out that German industrial production is now more than 7% below its pre-pandemic level.

UK government bonds are rallying today, after the Bank of England’s chief economist indicated that interest rates could be cut next year.

With prices rising, the yield (or interest rate) on UK two-year government bonds has fallen to the lowest level since June.

Two-year gilt yields, which are sensitive to interest rate expectations, are down almost 10 basis points at 4.625%, down from 4.723% last night.

These two-year bonds are also used to price fixed-term mortgages.

The rally comes after BoE chief economist Huw Pill indicated yesterday that the central bank could start to lower interest rates next summer.

Pill told an online presentation that the pricing in financial markets, indicating the first rate cut could come in mid-2024, “doesn’t seem totally unreasonable, at least to me.”

Pill explained:

“It is at that point you might consider or reassess, if nothing new has happened, where we are going to have to be.”

Today, the financial markets are indicating that Bank rate will have been cut to 4.5% by the end of 2024, down from 5.25% today.

Last week, the Bank’s governor Andrew Bailey insisted it was “much too early” to think about cutting borrowing costs, though.

UK grocery price inflation has fallen to single digits for the first time in 16 months, as the cost of living squeeze eases.

Prices across grocers were 9.7% higher than a year ago over the four weeks to October 29, down from the previous month’s 11%, data provider Kantar has reported.

It is the eighth consecutive drop in the rate of price rises since the figure peaked at 17.5% in March, and the first time the figure has fallen below 10% since July last year.

Kantar says the drop to 9.7% is “positive news and something of a watershed”, but they point out that consumers will still be feeling the pinch.

They also found that prices have only fallen, year-on-year, in a small number of major categories including butter, dried pasta and milk.

Fraser McKevitt, head of retail and consumer insight at Kantar, said:

“Retailers continue to look at ways of softening the blow for shoppers and slowing the rate of price rises.

“This has included upping the ante on promotions – every single one of the grocers increased the proportion of sales through deals versus last year, which is something that has only happened on one other occasion in nearly 10 years.

“It’s now been over a year-and-a-half of pinched pockets and people are continuing to respond by trading down on the items they’re putting into their baskets. The gap between own-label and branded goods is at its narrowest since spring last year.”

House prices are also being supported by a slowdown in housebuilding, leaving buyers with fewer properties to compete for.

Persimmon, one of the UK’s largest housebuilders, has reported this morning that it completed 37% fewer homes in the last quarter, than a year ago.

It completed 1,439 homes in the period from 1 July to 6 November, down from 2,270 a year earlier, it says in a trading update this morning.

For this year as a whole, it expects to complete 9.500 homes, down from 14,868 in 2022.

Housebuilders slowed their construction work as mortgage rose over the last year, dampening demand in the market.

Persimmon says the average selling price in its forward order book has fallen slightly, while it has also been offering more incentives, particularly to buyers in the south.

Dean Finch, Persimmon’s chief executive, explains:

“Trading in the period was in line with expectations and pricing was broadly stable. We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half.

While the near term is likely to remain challenging and we remain disciplined on costs, we continue to position the business for growth when the market recovers, as demonstrated by our further progress on planning in the period.

On an annual basis, house prices fell on an annual basis in all UK nations and regions in October, Halifax says.

The greatest fall was seen in South East England, where prices decreased by -6.0% over the last year (taking the average house price down to £374,066).

In London, prices are down by 4.6% over the last year, putting the average house price in the capital at £524,057 (the highest of any UK region).

In Scotland, prices fell by 0.2% over the last 12 months, while prices in Northern Ireland are down 0.5%, and they dropped by 3.9% in Wales over the last year.

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

UK house prices rose in October for the first time since March, amid a shortage of properties available, but remain lower than a year ago.

The latest house price index from Halifax shows that the average house price rose by 1.1% in October, following a 0.3% drop in September. That’s the first monthly increase after six consecutive monthly falls from April to September.

That lifted the price of the average house sold to £281,974, an increase of around £3,000 over the month.

But on an annual basis, property prices are now 3.2% lower than a year ago, compared with a 4.5% fall in the year to September, with prices down sharpest in South East England.

This calming of the market comes as mortgage rates have fallen from their peaks last summer, as UK inflation has fallen back.

Kim Kinnaird, director at Halifax Mortgages, explains that a shortage of properties on the market is supporting prices:

“Prospective sellers appear to be taking a cautious attitude, leading to a low supply of homes for sale. This is likely to have strengthened prices in the short-term, rather than prices being driven by buyer demand, which remains weak overall. While many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers.

“Across the medium-term, with financial markets not anticipating a decline in the Bank of England’s Base Rate soon, we expect house prices to fall further overall – with a return to growth from 2025.

“The current picture should continue to be seen in the context of the longer-term house price trend as, on average, prices remain around £40,000 above pre-pandemic levels.”

Halifax’s report matches the messages from rival lender Nationwide last week; they also reported a surprise increase in house prices in October:

Borrowers could also benefit from a drop in UK interest rates next year.

Last night, the Bank of England’s chief economist, Huw Pill, predicted that rates could start to fall in the middle of 2024.

Also coming up today

Wall Street is digesting the collapse of WeWork, the once high-flying startup which filed for Chapter 11 bankruptcy overnight.

The debt-laden company is entering a restructuring support agreement with stakeholders to drastically reduce its existing borrowing, having struggled to recover from the pandemic.

Investors in the UK will have an eye on parliament, where King Charles will lay out the government’s legislative plans for the new parliament.

We’re expecting a new annual system for awarding oil and gas licences, and moves to prioritise motorists.

The agenda

• 7am GMT: Halifax house price report

• 7am GMT: German industrial production

• 8.30am GMT: Eurozone construction PMI

• 10am GMT: Eurozone PPI index of producer price

• 1.30pm GMT: US trade report for September