Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK house price have hit fresh record highs, despite the prospect of the Bank of England raising interest rates in response to rising inflation.
Lender Nationwide reports that the price of the average house rose by 0.7% in October, up from 0.2% in September, extending the surge in prices since the first Covid-19 lockdowns ended last year.
The annual growth rate remained elevated at 9.9% in October, slightly lower than 10% a month earlier.
It means the average property price has risen by more than £30k since the pandemic hit early in 2020.
That lifts the price of a typical UK home over the £250,000 mark for the first time on Nationwide’s index (although the broader Land Registry data showed the average UK house price was £264,000 in August).
Robert Gardner, Nationwide’s chief economist, said demand for homes remained strong, despite the stamp duty holiday finishing at the end of September.
Indeed, mortgage applications remained robust at 72,645 in September, more than 10% above the monthly average recorded in 2019. Combined with a lack of homes on the market, this helps to explain why price growth has remained robust.
Gardner warns, though that the outlook remains “extremely uncertain”, as the government withdraws some of the pandemic support such as the job retention scheme (which ended a month ago).
If the labour market remains resilient, conditions may stay fairly buoyant in the coming months – especially as the market continues to have momentum and there is scope for ongoing shifts in housing preferences as a result of the pandemic to continue to support activity.
“However, a number of factors suggest the pace of activity may slow. It is still unclear how the wider economy will respond to the withdrawal of government support measures.
Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living.
The Bank of England will announce tomorrow whether it is lifting UK interest rates from their current record low of 0.1%, with some policymakers concerned that inflation is heading over 4% (twice its target), in the coming months.
Also coming up today
Investors around the world are bracing for tonight’s Federal Reserve meeting. America’s central bank is expected to lay out the timetable to slow the pace of its bond-buying stimulus programme, in response to the jump in inflation and the recovery in the jobs market.
The Fed is currently pumping $120bn a month into the economy by buying government bonds (Treasury bills) and mortgage-backed securities, and start to ‘taper’ those purchases by buying less each month.
Adam Cole, chief currency strategist at RBC Capital Markets, says:
In what may be the best (and longest) advertised meaningful policy shift, the FOMC will announce tapering at the coming meeting. Our economists expect the Committee to start with a reduction of $10bn in Treasuries and $5bn in MBS.
As the Fed has been suggesting, at this pace it would finish right around midyear. Of course, the taper will come with all of the caveats one would expect: the Fed reserves the right to adjust the pace given economic conditions, etc. But we also note this flexibility can work both ways, with the flexibility to taper more quickly to an earlier end if data point that way.
Don’t be surprised to hear Powell say during the presser (if it’s not inserted into the statement) that while “substantial further progress” has been achieved for taper, there is a different set of criteria for the nebulous terms to be achieved as it relates to hiking.
We also find out how services companies across the UK, eurozone and US fared last month.
- 9am GMT: Eurozone services PMI for October
- 9.30am GMT: UK services PMI for October
- 12.15pm GMT: ADP survey of US private sector payrolls
- 2pm GMT: US services PMI for October
- 6pm GMT: US Federal Reserve rate decision
- 6.30pm GMT: US Federal Reserve press conference