Welcome to Your Panthera Consultancy Weekly Newsletter!
In this week’s newsletter, we bring you exciting updates: the UK GDP grew faster than expected in the first quarter of 2024, property sales rose in May leading to increased sale prices in June, and major banks are slashing mortgage interest rates! Additionally, the political landscape has shifted with Labour taking office. What does this mean for the economy and business prospects?
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Now onto the updates:
ECONOMY
GDP Grew Faster Than Expected in Q1
Revised figures from the Office for National Statistics (ONS) show that the UK economy grew by more than initially estimated in the first three months of the year. Figures released in May suggested that GDP was up 0.6% in Q1 as the UK emerged from recession. However, the updated analysis shows that the economy grew by 0.7%. Reflecting on the revised ONS data, Danni Hewson, head of financial analysis at AJ Bell, said: “It’s the tiniest sliver of improvement but when it comes to UK GDP growth, every little really does help.” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said while “hotter-than-expected growth doesn’t help those looking for a faster route to cutting interest rates, it does help to boost overall optimism.”
UK Services Sector Growth Slows
A closely-watched survey suggests the level of activity in the UK services sector slowed in June, compared to May. The S&P Global UK services PMI survey scored 52.1 in June, down slightly from 52.9 in May. Growth in the sector is still increasing, but at a slower rate. Joe Hayes, principal economist at S&P Global Market Intelligence, said: “We are seeing some evidence of a pre-general election seize-up across the UK services economy, with growth in business activity slowing to a seven-month low.” The survey revealed that some firms were hesitant to place orders and commission new projects before knowing the new government.
UK Employers Expect Wage Bill Growth to Slow
British employers expect their wage bills to grow more slowly over the next 12 months, which could lead to an interest rate cut by the Bank of England. The BoE’s Decision Maker Panel survey showed that expected year-ahead wage growth fell to 4.2% in June, the lowest reading since May 2022. This cooling of wage growth could persuade more MPC members to loosen policy. Companies also expect slower growth in their selling prices and moderation in consumer price inflation.
REAL ESTATE
Property Sales Climb Again in May
Data from HMRC shows that property sales increased for a fifth consecutive month in May. The figures show that 91,290 sales took place in May, with this 2% up on April’s total and 17% higher than in May 2023. Over April and May, 180,450 transactions took place, compared with 160,530 a year earlier.
House Prices Climb 0.2% in June
Data from Nationwide shows that house prices rose by 0.2% between May and June, taking the average property price to £266,064. Year-on-year, prices were up 1.5% on June 2023, marking a slight increase on the 1.3% annual growth recorded in May. The analysis shows that the number of transactions were down 15% on pre-pandemic levels recorded in 2019, while transactions involving a mortgage have fallen by 25%. Robert Gardner, Nationwide’s chief economist, noted that mortgage rates are “still well above the record lows prevailing in 2021 in the wake of the pandemic,” adding: “As a result, housing affordability is still stretched.”
INTERNATIONAL
EU Banks Vulnerable to Real Estate ‘Cracks’
EU banks have lent over €1.4trn to the commercial real estate sector, making them vulnerable to market cracks, according to the European Banking Authority (EBA). The EBA’s latest risks report highlights the elevated uncertainty faced by banks due to geopolitical factors. While capital levels are comfortable, caution is needed as payouts rise on the back of higher profits. The report also reveals that EU banks’ exposure to real estate has risen 40% over the past decade, with some banks having exposures that are multiples of their equity. EU banks have already set aside €31bn against loans to real estate going sour, and the risks are deemed manageable.
Eurozone Inflation Eases to 2.5%
Eurozone inflation edged lower in June, with Eurostat’s flash estimate for inflation across the bloc coming in at 2.5%. This marks a slight decline on the 2.6% recorded in May. While May’s reading was up, month-on-month, the European Central Bank (ECB) recently opted to cut interest rates for the first time in five years, reducing the main interest rate to 3.75%. ECB President Christine Lagarde says the central bank needs to be sure inflation is firmly under control before cutting its key rate again.
BANKING
Major Mortgage Lenders Slash Rates
Britain’s biggest lenders are engaging in a mortgage rates price war as they anticipate a surge in buying interest after the election. HSBC and Barclays have both reduced their rates for the second time in two weeks, with the changes taking effect from July 5. Barclays has cut rates by up to 0.7 percentage points, while HSBC is yet to provide full details of the cuts across its residential range. Other lenders, including Halifax, NatWest, and Santander, have already reduced their fixed-rate mortgages. The decrease in swap rates, the main pricing mechanism for fixed-rate mortgages, has given lenders room to further reduce prices. Nicholas Mendes of brokerage John Charcol believes that lenders have held rates for longer than preferred due to the election, but are now repricing as it concludes. The average rate for a two-year fixed residential mortgage is 5.93%, while the average five-year fix is 5.51%.
Savers Urged to Grab Inflation-Beating Accounts
Savings experts are advising UK savers to take advantage of the current opportunity to lock into inflation-beating savings accounts. With the expectation of interest rate cuts in the near future, experts warn that the current high rates may not last long. Fixed-rate savings bonds are currently offering returns of 5% or more, providing a guaranteed rate that is more than double the current inflation rate. Experts recommend considering two-year fixed savings bonds, as rates are expected to decrease over time. Sarah Coles, of broker Hargreaves Lansdown, said: “If you have savings you don’t need to get your hands on in an emergency, now is a really sensible time to consider locking in a fixed rate.”
RETAIL
Shop Price Inflation Hit 0.2% in June
UK shop prices increased at their slowest pace in nearly three years last month, according to the British Retail Consortium. Prices across the retail sector were up by just 0.2% in the year to June, marking a fall on the 0.6% seen in May. Food prices slowed for the fourteenth consecutive month, climbing by 2.5% compared to 3.2% in May. Non-food prices fell by 1%, outpacing the 0.8% decline logged in May. Victoria Scholar, head of investment at Interactive Investor, said the retail price data “could provide a boost to markets as well as consumer and business confidence.”
MANUFACTURING
Manufacturing Sector Grows Again
The UK’s manufacturing sector grew for the second consecutive month in June. The S&P Global/CIPS UK manufacturing PMI hit 50.9 in June, dipping from a 22-month high of 51.2 in May on an index where a figure above 50 represents growth. The survey found that production volumes grew, with this driven by strong levels of new work in the domestic market. Rob Dobson, director at S&P Global Market Intelligence, said: “The performance of the domestic market remains a real positive, providing a ripe source of new contract wins.” He added, however, that “the ongoing weak export performance is concerning.” New work from overseas was down for the 29th month in a row.
CONSTRUCTION
Slump in Housebuilding Slows Construction Growth
The UK construction sector grew further last month, but its recovery lost momentum due to a slump in housebuilding. The latest S&P Global construction purchasing managers’ index (PMI) scored 52.2 in June, down from 54.7 in May. Firms reported a slower rise in new orders, with some blaming uncertainty in the run-up to the General Election. Growth across the sector was driven by commercial construction work, which increased markedly in June. However, housing saw a decline after output dropped back following its first rise for 19 months in May.
LEISURE & HOSPITALITY
Investment in UK Hotels Up 50%
Investors committed £3bn of investment into UK hotels in the first half of 2024, with this taking total investment to 50% above 2023 levels. The increase was driven by a number of major deals, with the largest individual deal of the year seeing private equity firm Blackstone acquire hotel operator Village Hotels from KSL Capital Partners in a deal worth around £850m. Not far behind, Starwood Capital bought ten Radisson Blu hotels from Edwardian Hotels for £800m. Of the £3bn total, overseas investors accounted for nearly half.
AUTOMOTIVE
New Car Sales Up, But Private EV Demand Falls
New car registrations in the UK rose by 1.1% in June, marking a 6% increase in the first half of 2024. The Society of Motor Manufacturers and Traders reported that the half-year sales reached 1,006,763, the highest in five years. The growth in registrations was driven by the uptake of electric vehicles and fleet sector sales. However, private retail demand has fallen, leading to calls for the new government to introduce more incentives for electric vehicle purchases.
OTHER
Warning Over New King Charles Notes
An urgent warning has been issued for Brits to carefully examine their banknotes as scammers take advantage of the new King Charles III notes. The Bank of England and Raisin UK have found almost 116,000 counterfeit notes seized from circulation last year, with a face value of £2.5m. Despite the sophisticated anti-fraud features on the new notes, experts advise the public to be vigilant.
Closing Thoughts
As always, we thank you for being an avid reader of the Panthera Consultancy Newsletter and for trusting us to provide you with these essential financial updates. Beyond updates, we are here to support your business in obtaining finance and helping both businesses and individuals convert currencies cost-effectively.
If you’re looking to elevate your business to the next level or want to uncover where banks might be overcharging you on foreign exchange transactions, get in touch today. Let us help you revolutionise your financial future.
Until next week, Stay Informed & Stay Ahead.
With my kindest of regards,
Benjamin Vis
Managing Director – Head of Business Lending
Panthera Consultancy – Unmatched in the Financial Kingdom