UK inflation hits 10.1%
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
The cost of living
The UK's rate of consumer price inflation accelerated to 10.1% in the 12 months to July 2022, up from 9.4% in June, according to official figures out this morning. A broad range of goods lead the index, from various food types and toiletries to air fares and package holidays. There is little in there to suggest a turnaround is imminent.
Manufacturers' input costs, the price they pay for fuel and raw materials, did ease to 22.6%, down from 24.1% in June. The cost of goods leaving factories rose 17.1% during the year, the highest rate of growth since the late 70s. That's up from 16.4% a month earlier.
The data comes a day after separate figures revealed that average wages had fallen 3% during the second quarter when adjusted for inflation, the fastest drop since records began in 2001.
Nevertheless, all this plus yesterday's surge in gas prices suggests the consumer squeeze has further to run. European gas prices rose as much as 10% on Tuesday and have settled at roughly 10 times their normal level amid a race to secure supplies ahead of winter.
Counterpoints
So far, so gloomy, but there are other numbers worth considering. The jobs and pay figures linked above did show some early signs of easing. The number of unemployed people rose slightly, pushed up by people moving out of "economic inactivity" into the labour market to look for jobs. The number of vacancies fell for the first time since mid-2020.
Then there's the weeks-long rally in equity markets, suggesting that sentiment among investors is in the early phases of brightening. The S&P 500, for example, has risen for four consecutive weeks to recover half its losses from the year's steep declines, its longest winning streak in a year or so. The FTSE 100 is at a two-month high. The juxtaposition with the economic data we're seeing is due to the fact that the data is backward looking and investors are looking forwards.
A monthly survey of European fund managers by Bank of America, covered in this morning's Times, reveals that investors expect the equity rally to continue despite the likelihood of recession. The survey shows a net 80% of investors expect inflation to decline over the next 12 months, the highest proportion since 2008.
“Sentiment remains bearish, but no longer apocalyptically bearish as hopes rise that inflation and rates shocks end in coming quarters,” the bank said.
New Zealand
The Reserve Bank of New Zealand raised its key interest rate to 3% overnight, further cementing its position as the global leader in tightening monetary policy.
The Bank's 2.75 percentage points of hikes in the past 10 months outpaces both the Fed and Bank of Canada’s, who have both hiked 2.25 points, according to Bloomberg. Updated forecasts from the RBNZ published alongside the decision suggest the rate could rise above 4% in the second quarter of next year before declining beyond 2024.
That will be a significant test for a housing market in which annual price movements are already in negative territory. The Bank's projections suggest we'll see a 15% peak to trough decline. The median house value fell 1.6% during the year to July, the first annual decline since 2011.
WeLive?
WeWork founder Adam Neumann has raised another boat load of money for his new venture Flow, a branded product for the residential rental market. The $350 million investment from early Facebook investor Andreessen Horowitz values the new venture at $1 billion before opening its doors, according to the report from Dealbook.
Marc Andreessen of Andreessen Horowitz lays out the venture in more detail here, linking long term structural issues such as expensive housing and poor quality rental products with new working habits and the decline in social bonding caused by moving further from places of work. He drops a fairly heavy hint that renters of the new product will be able to build equity in some way.
Neumann has purchased more than 3,000 apartment units in Miami, Fort Lauderdale, Atlanta and Nashville, according to the original Dealbook report.
In other news...
British buyers looking for a mortgage for their second home in France face a shrinking pool of lenders since leaving the EU. Kate Everett-Allen talks to Felicity Sullivan of Knight Frank Finance to understand what’s changed.
Whilst the depth of the fallout from the pandemic appears to have been less severe for the Serviced Apartment sector, adapting the business model has been critical for survival. Philippa Goldstein explains.
Elsewhere - New UK lender plans 50-year fixed rate mortgages (FT), and finally, US home cancellations surge (Bloomberg).