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Halifax by Reuters: UK house prices post their biggest quarterly decline since 2009

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© Reuters. FILE PHOTO: High-rise apartments under construction can be seen in the distance behind a row of apartment blocks in south London, Britain, August 6, 2021. REUTERS/Henry Nicholls

Data issued by the Halifax Mortgage Institution, Friday, showed that house prices in Britain fell again in December, capping the largest quarterly decline since the financial crisis more than 10 years ago.

Halifax said the median home price fell 1.5% month-on-month in December, after falling 2.4% in November, marking the fourth consecutive monthly decline.

On a quarterly basis, home prices fell 2.5% – the largest decline since the three months through February 2009.

“Uncertainty about the extent to which an increase in the cost of living will affect household bills, coupled with higher interest rates, is leading to an overall slowdown in the market,” said Halifax director Kim Kinnaird.

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Halifax expects house prices to fall 8% in 2023 – although Kinnaird indicated that this would only mean a return to levels last seen in April 2021.

Home prices soared during the COVID-19 pandemic as people rushed to buy larger homes with gardens, fueled by temporary tax incentives.

Halifax said the annual rate of house price growth fell to 2.0% from 4.6% in November, the lowest reading since October 2019.

“As we enter 2023, the housing market will continue to be affected by the broader economic environment, and with buyers and sellers remaining cautious, we expect a decline in both supply and demand in general,” Kinnaird said.

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It is too early to declare the UK inflation threat defeated, says the Bank of England’s chief economist

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The Bank of England’s chief economist said it was too early to say that the risk of inflation in the UK had been defeated and that existing conditions in Britain remained a problem of rising prices.

In a hawkish speech to a financial audience in New York on Monday, Huw Pill sent the message that the Bank of England is not done raising interest rates because the UK faced too many challenges simultaneously that would exacerbate the inflationary threat.

Bell said the UK was unique in facing the normalization of interest rates from very low levels, the need to fight the strong pricing power of companies, tight labor markets and the energy price crisis.

“The range of energy prices rises to cause notorious second-round effects in price, wage and cost dynamics . . . it is greatest when the corporate sector has pricing power and the labor market is tight.”

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Reiterating the Bank of England’s Monetary Policy Committee statement from its December meeting that further interest rate increases “may be required for a sustainable return of inflation to [the 2 per cent] target,” Bell added that his future vote will be influenced by the set of circumstances indicating that inflation is likely to remain persistently high.

“The distinct context prevailing in the UK – of rising natural gas prices combined with a tight labor market, adverse developments in labor supply and commodity market bottlenecks – creates the potential for inflation to prove more persistent,” he said.

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BoE Pill Sees Persistent Inflation Risk, Even If Gas Price Falls By Reuters

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© Reuters. FILE PHOTO: A general view shows the Bank of England building in London, Britain on November 3, 2022. REUTERS/Toby Melville

By David Milliken

LONDON (Reuters) – Britain risks persistent inflationary pressures from a tightening labor market, Bank of England chief economist Howe Bell said on Monday, even if prices stabilize or fall.

Bell said in a speech he will deliver in New York later on Monday.

“(This) will strongly influence my position on my monetary policy in the coming months,” he added.

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The Bank of England has released a transcript of Bell’s comments ahead of the speech he plans to give to the Capital Market Association at New York University.

The Bank of England raised its key rate to 3.5% in December, up from 0.1% a year earlier, and financial markets expect the central bank to raise interest rates again to 4% in its next policy announcement on February 2nd.

However, economists and markets are divided on how much further the price hike will be beyond that. Inflation has fallen slightly since it hit a 41-year peak of 11.1% in October, and the British economy appears to be entering a shallow recession.

Bell said that even if there was a drop in natural gas prices, the main driver of the latest spike in inflation, that was no guarantee that underlying price pressures would fall enough for inflation to return to the BoE’s 2% target.

Bell said businesses and workers need to accept lower inflation-adjusted profit margins and wages than they were before the energy shock.

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“The more companies try to maintain real profit margins, and employees try to maintain real wages at pre-energy price shock levels, the more likely it is that domestically generated inflation will pick up its own momentum,” Bell said.

Britain is currently facing a wave of strikes as trade unions seek to reduce the impact of inflation on their members’ salaries.

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Strong economic data points to a shallow recession in the Eurozone

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Unemployment in the eurozone hit a new record low, while output from German factories rose in November, boosting hopes of a milder economic slowdown than fears in the single currency area.

Figures from Eurostat, the European Commission’s statistics office, showed that the number of people in the labor market without work fell slightly in November. Eurostat reported that 10.849 million workers were without jobs, 2,000 fewer than the previous month and the lowest since records began. The unemployment rate has remained unchanged since October at 6.5 percent.

Meanwhile, Germany’s Federal Statistics Office reported that industrial production rose 0.2 percent between October and November, a reading slightly better than the 0.1 percent expansion forecast by economists polled by Reuters.

Francesca Palmas, chief economist for Europe at Capital Economics, a research firm, said the rise confirmed that German manufacturing strength “held up better than expected” during the fourth quarter of 2022.

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On Friday, Germany’s statistics office is set to publish its first estimate of last year’s gross domestic product, which economists expect to show the economy contracted by a modest amount during the last three months of 2022.

The rise in energy prices last spring after Russia’s invasion of Ukraine raised fears of energy shortages and a deep recession in the eurozone. However, economists have steadily raised their growth estimates in recent months on the back of better-than-expected incoming data and falling wholesale gas prices.

Investor sentiment regarding the Eurozone economy also improved. The Syntex market sentiment index, also published on Monday, showed the third consecutive increase in January to the highest level since June 2022. Patrick Hussey, managing director of Syntex, said.

The resilience of the eurozone economy and its labor market it is expected that It leads to more interest rate increases by the European Central Bank.

With unemployment stuck at historically low levels, “the ECB’s hawkish tone is likely to multiply with further tightening in the coming months,” says Paolo Grignani, economist at Oxford Economics.

Markets are pricing in a 50 basis point increase in interest rates when the European Central Bank meets on February 2nd. That would be up from the 2.5 percentage point increases since June last year, which took the deposit rate to 2 percent in December.

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A tight labor market could boost wage growth and keep core inflation higher for longer. While the headline inflation rate fell to single digits in December, come in at 9.2 percentCore inflation — which excludes changes in food and energy costs and is seen as a better measure of long-term price pressures — rose from 5 percent to 5.2 percent.

Line chart of 2022 GDP growth forecasts, by forecast date showing that economists have revised their 2022 economic growth forecasts for the Eurozone

Bert Collin, chief eurozone economist at ING, noted that the strength of the labor market “makes it a key risk for the ECB’s second round inflationary effects.” With a tight labor market, Cullen added, “unemployment is unlikely to rise enough to make labor shortages a thing of the past.”

Between October and November, the unemployment rate in Italy, France and Spain fell by 0.1 percentage point to 7.8 percent, 7 percent and 12.4 percent, respectively. It remained at 3 percent in Germany.

Melanie Debono, chief economist for Europe at Pantheon Macroeconomics, said fiscal support across the eurozone should prevent a “significant increase in unemployment,” despite the economic downturn.

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