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Rolling coverage of the latest economic and financial news.
German, French industrial production unexpectedly falls
Industrial production in the eurozone’s two largest economies stumbled in November, new data this morning shows.
Industrial output in Germany dipped by 0.2% during the month, missing forecasts of a 1% gain, as supply chain frictions continued to hit German industry.
Carsten Brzeski, ING’s chief economist for Germany, says German industrial revival in October proved to be short-lived.
He also warns that the latest wave of Covid-19 across the globe means things for German industry will get worse before they get “structurally and sustainably” better.
The fourth wave of the pandemic and Omicron should send industrial activity back into hibernation.
German industry remains in the stranglehold of global supply chain frictions. It is not only semiconductors but all kinds of input goods, ranging from bottom brackets for bikes to magnesium needed in automotive and aircraft construction.
Supply chain frictions are not only leaving their mark on actual production but have started to spread and to undermine production prospects as reflected by dropping orders and weakening production expectations. Looking ahead, it will take until spring next year before German industry is back on a fully sustainable recovery path.
In France, industrial production dropped by 0.4%, also weaker than expected,
The Omicron variant could also dampen demand, with economic growth taking a hit from the restrictions to fight the pandemic. But Omicron could also deter people from putting their homes on the market and inviting buyers in.
If Omicron proves to be a lingering and disruptive problem, it could widen the mismatch between housing demand and supply which could put upwards pressure on prices.
“The end of the stamp duty holiday has taken some of the heat out of the UK housing market, which may cool further if the Bank of England follows December’s interest rate rise with further increases in the year to guard against increases in inflation. The Omicron variant could also reinforce the slowdown if it results in a weaker labour market.
The 9,8% jump in prices over the last year also makes it even harder to get onto the housing ladder, Jobson adds:
House prices continue to outstrip the rate of wage growth, making it difficult for wannabe first time buyers to raise a deposit – the hardest aspect of getting onto the property ladder. The likely increase in mortgage rates over the year will contribute further towards the unaffordability of homeownership.
Omicron hits C&C’s drinks sales in December
Irish drinks producer C&C Group suffered a hit to sales last month as the Omicron variant hit demand.
C&C, which produces Bulmers and Magners cider, and Tennent’s lager, says sales in December missed expectations.
New restrictions imposed in the UK and Ireland in December had a significant impact on its ‘on-trade business’ which sells drinks to pubs, bars and restaurants.
C&C told the City that:
In the month of December, the key festive trading period, C&C traded directly with 81% of on-trade outlets vs FY2020, delivering 64% of the volume against an expectation of 90% and 90% respectively.
While December’s performance was consequently behind expectation, the Group generated a modest profit for the month.
Before Omicron stuck, C&C was seeing a recovery. Trading in September to November was modestly ahead of expectation, thanks to customers returning to hospitality venues.
C&C also lifted its prices “to manage inflationary cost pressures”.
Shares have dropped almost 3% in early trading.
UK house prices: what the experts say
After a strong 2021, the UK housing market faces an uncertain 2022, says Jan Crosby, head of infrastructure, building and construction at KPMG UK:
The stamp duty holiday that partially fuelled last year’s increased demand is long gone, but concerns around house price inflation, ongoing supply chain issues and the impact of the Omicron variant are creating an unwelcome climate of uncertainty.
“Hopefully these pressures on the market ease sooner rather than later, although the price rises seen last year will continue to impede first-time buyers in particular.
“At some point the market has to moderate, either through an increase in supply or – perhaps more likely – a drop-off in the pandemic-era trend of people looking to move as what they want from their home has changed.”
Martin Beck, chief economic advisor to the EY ITEM Club, reckons the markets will cool this year, but prices won’t fall:
The end of the stamp duty holiday has been followed by signs of the housing market returning to more normal levels of activity. And the fundamentals facing the market are looking less supportive of continued growth in prices. Higher inflation and tax rises will affect households’ spending power and mortgage rates are likely to rise in response to the Bank of England’s decision to increase the policy rate. Moreover, pandemic-driven changes in housing preferences, and the resulting boost to demand, are likely to fade over time.
But mortgage rates will be increasing from a very low level. Unemployment is low and households, overall, are still sitting on substantial unplanned savings accumulated during the pandemic. So, while the EY ITEM Club expects house price growth to decelerate significantly this year, an outright fall in prices is unlikely.
North London estate agent Jeremy Leaf reports that a shortages of houses for sale is holding the market back:
‘Buyers are clearly still emerging following their short hibernation to carry on where they left off, quickly snapping up new properties which come onto the market. Most are choosing to forget worries about rising inflation, interest rates and taxes to say nothing of Omicron.
‘However, lack of stock is reducing the number of transactions and supporting prices. Market appraisals and new instructions are improving but not quick enough yet.
’Stretched affordability means that prices are unlikely to rise as quickly as they did for a large part of 2021 but prices of family houses in particular will continue to do well.’
Introduction: UK house prices rise at fastest rate since 2007, but slowdown looms
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK house prices have posted their strongest year since the financial crisis, but a slowdown may be looming.
Monthly figures just released by mortgage lender Halifax show that UK house prices jumped 9.8% during 2021, hitting record highs.
That’s the sharpest annual increase since July 2007, Halifax says, as demand for larger homes, record low interest rates, and the stamp duty tax break drove up prices.
House prices rose by 1.1% in December alone, the sixth monthly rise in a row, as the market ended the year strongly.
But the market may cool during 2022, Halifax argues, as the cost of living squeeze and higher interest rates hit household budgets.
Halifax reports that:
- Average UK property price hits a new record high of £276,091
- House prices have increased by over £24,500 in 2021 — the highest year-on-year cash rise since March 2003
- House price growth expected to slow in 2022
Russell Galley, managing director at Halifax, explains:
“The housing market defied expectations in 2021, with quarterly growth reaching 3.5% in December, a level not seen since November 2006. In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to ‘lockdown’ for much of the first six months of the year.
“The lack of spending opportunities afforded to people while restrictions were in place helped boost household cash reserves. This factor, alongside the Stamp Duty holiday and the race for space as a result of homeworking, will have encouraged buyers to bring forward home purchases that may have been planned for this year. The extension of the Government’s job and income support schemes also supported the labour market and may have given some households the confidence to proceed with purchases.
“A lack of available homes for sale, and historically low mortgage rates, have also helped drive annual house price inflation to 9.8%, its highest level since July 2007.
“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably. Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace. However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”
Last month, Halifax reported that the “race for space” between homebuyers has pushed up prices in some UK towns by about a fifth this year, with Taunton topping a list of areas with the biggest increases.
Also coming up today,
Markets are bracing for the latest US non-farm payroll report, which is expected to show that around 400,000 new jobs were created in America last month.
A strong reading, and a jump in earnings, could increase the chances the US Federal Reserve raises interest rates as soon as March — a prospect that knocked markets this week.
Kyle Rodda of IG explains:
Today’s trade in global markets will be about US Non-Farm Payrolls data, the anticipation of which has probably exacerbated this increased uncertainty around US Fed policy this week. Forecasters are tipping a solid 426k jobs gain, a drop in the unemployment to 4.1%, and – crucially – a rise in average hourly earnings of 0.4%.
It’s that final detail that may prove most pertinent for market participants, as they remain wary of signs of an emerging wage-price spiral. If the wages number does come in hotter than expected, then it may add to those fears of a more aggressive Fed, and add to this recent bout of elevated volatility and weakness in equities.
We also get December’s eurozone inflation report – in November, inflation across the 19-member eurozone soared to 4.9%. The latest construction PMI report will show how UK builders fared last month.
- 7am GMT: Halifax UK house price survey
- 9.30am GMT: UK construction PMI
- 10am GMT: Eurozone inflation report for December
- 1.30pm GMT: US non-farm payroll jobs report for December
Source: Thanks msn.com