LONDON (Reuters) – Banks scrambled to push back their forecasts for the next Bank of England interest rate raise after data on Friday showed a sharp and unexpected slowdown in Britain’s economic growth.
The new forecasts anticipate the next BoE hike to take place in August this year or as late as 2019.
Before Friday’s GDP data most economists had expected the central bank to tighten monetary policy in May.
The change in banks’ forecasts signals a much weaker outlook for the pound, which has been among the best performing major currencies in 2018.
Last week expectations of higher rates lifted sterling to its highest since the Brexit referendum in June 2016.
The likelihood that the BoE will not hike next month also means bond prices could rally further and presents a more volatile backdrop for the UK stock market.
UBS scrapped its estimate of a single rate hike in 2018 after the weaker-than-expected growth figures while Nomura, which has long been hawkish on UK interest rates, now sees a first hike in August.
Bank of America Merrill Lynch and Natwest Markets strategists pushed back their May rate hike calls to November.
“We view the (economic) slowdown as more serious, and see no prospect of hikes in 2018,” said UBS, the world’s largest wealth manager, in a note.
John Wraith, a UBS economist, said inflation could fall back to the central bank’s target of two percent later this year and that concerns about talks between Britain and the European Union over the terms of their divorce could resurface.
Market expectations of a rate hike in May tumbled to less than 20 percent from around 50 percent, after GDP data showed Britain’s economy slowed to 0.1 percent growth between January and March, the weakest quarter since 2012.
Earlier this month the market was pricing in a 90 percent chance of a rate rise.
The market is now also forecasting no more than one 25 basis point rate hike over the remainder of 2018, from a near-certain two rate rises expected a fortnight ago.
Sterling GBP=D3 tanked more than one percent to $1.3748 and government bond prices surged in the aftermath of the data.
Reporting by Tom Finn and Saikat Chatterjee, Editing by Tommy Wilkes and William Maclean
The number of families with children living in rented property tripled between 2003-2016…
The Resolution Foundation has proposed a series of reforms aimed at protecting tenants and landlords in the private rented sector.
According to the think-tank’s research, half of all millennials – people born between 1980 and 1996 – will be living in rented property up to their 40s, whilst a third are likely to be renting beyond retirement.
Furthermore, four out of ten millennials aged 30 are already renting, double the rate of the previous generation and four times that of baby boomers, whilst the number of families with children lived in the private rented sector has grown substantially, from 0.6m in 2003 to 1.8m in 2016.
Although they acknowledge the policies the government has introduced to make housing more accessible for first time buyers, the Resolution Foundation argues that more needs to be done to provide greater security for those that rely on renting.
This includes short-term measures such as proposals for indeterminate tenancies, which are essentially open-ended leases. Such tenancies are already in use in parts of Europe, including Scotland.
A new tribunal system could also be created, in order to resolve disputes in a timely and cost-effective manner.
Lindsay Judge, a senior analyst at the Resolution Foundation, notes that support needs to be available across all areas of the housing market: “While there have been some steps recently to support housebuilding and first-time buyers, up to a third of millennial still face the prospect of renting from cradle to grave.
“If we want to tackle Britain’s ‘here and now’ housing crisis we have to improve conditions for the millions of families living in private rented accommodation.”
The number of build-to-rent properties either completed, under construction or planned has risen significantly across the UK in the past year.
Analysis by Savills, commissioned by the British Property Federation (BPF), reveals there were 117,893 build-to-rent homes recorded across all the stages of development in Q1 2018; a 30% increase on Q1 2017.
Completions, as well as build-to-rent homes under construction, have grown substantially by 45% and 47% respectively, whilst properties in the planning stage have increased by 19%.
Of all the new build-to-rent homes either completed, under construction or planned, 60,530 (51%) are in London, followed by 29,600 in the North West (25%), and 13,009 across the Midlands and Yorkshire & the Humber (11%).
Ian Fletcher, the director of real estate policy at BPF, commented: “The build-to-rent sector is evolving quickly, with significant delivery in the regions and more houses, rather than just apartments, coming forward.
“Policy is also adapting, as to date the sector has grown without a planning blueprint. This is now changing. With the draft revised National Planning Policy Framework, local authorities will now have to specifically identify how many new rental homes their respective areas need.”
Meanwhile, Housing Minister Dominc Raab said: “The 45% increase in completed build-to-rent homes is good news, but we’re restless to do more.
“Our revised National Planning Policy Framework is a crucial next step in supporting the build-to-rent sector, reforming planning rules, and helping to deliver 300,000 homes a year by the mid-2020s.”
Households outside London spend an average of just over half their income on renting…
Households renting in London are putting a significant percentage of their income towards rent compared to the rest of the country, according to new data from Landbay.
Annual rental growth in the UK, excluding London, rose to 1.21% in March, bringing the average monthly rent to outside the capital.
In London, the average monthly cost of renting is more than double the national average, at 2100
However, the average disposable income for a worker in the capital is per 2455 month. As a result, 89% of their take-home pay is used on renting.
Outside the capital, rental payments amount to just over half (52%) of the average disposable income, which is per 1760 month.
In England, renters in the North East have the lowest percentage (41%) of their incomes going towards rent, followed by Yorkshire & the Humber (43%), the North West (44%) and the East Midlands (44%).
“Rents have continued to rise over the last five years, increasing by 9% across the UK since March 2013 and by 7% in London,” notes John Goodall, CEO and founder of Landbay.
“Not a day goes by when there isn’t more news about the supply-demand mismatch in the UK housing sector and until this is resolved, tenants will continue to rely on the private rented sector to support them.
“With the right property and the right location, there are attractive yields to be had, and consistent rental demand will drive returns in the long-term,” Goodall concludes.
Strong demand for city-centre living, a huge student population and urban regeneration make Manchester one of the best-performing property markets in Britain
Manchester, benefitting from the recent £1bn investment as part of the Government’s Northern Powerhouse initiative, is showing itself to be a vibrant, forward-thinking metropolis with the most attractive city centre investment market in Britain, according to JLL.
The property specialist company rates Manchester as its No 1 prospect for residential price growth over the next five years, with the annual average growth of 4.2pc compared with 2.4pc across the UK. Rents are expected to increase by around 3.5pc per annum between now and 2020.
Pivotal to the recent success of Manchester is a revival in demand for city-centre living
House prices grew by 10pc in 2017, with the average two-bedroom flat now costing £250,000 (an increase of 8.7pc over 2017), and rental prices rose by 3pc, according to JLL’s latest research.
Pivotal to Manchester’s success is a revival in demand for city-centre living – a trend that was at its height before the 2008 recession, which collapsed along with house prices due to sheer oversupply.
In 2000 there were 10,000 people living in the heart of the city. Now there are nearly 70,000, many of them students or young professionals with a desire to live close to where they work and play.
“City living has gained strong momentum in Manchester over the past three years and, together with an active student market, has pushed demand in both the sales and lettings markets noticeably higher,” says Neil Chegwidden, of JLL residential research.
“And with housing supply in the city centre severely constrained, prices and rents have soared.”
For investors with an eye on Manchester, its student population of more than 85,000, spread among four universities, plays a crucial role.
The city has the highest retention rate of students after London, with 50pc choosing to stay after they graduate. Six in 10 Manchester-born students who go to university elsewhere also return to their home town after graduation.
Nick Whitten, JLL’s director of UK research, says: “You can see the reasons. They already know they enjoy living there and there are plentiful employment opportunities and affordable housing.
“More new businesses are coming to the city than anywhere else in the UK, outside London. Many of them are first-time investors in the city, which is a reflection of Manchester’s growing profile.”
Manchester: a market snapshot
Average house price growth in Manchester over next five years
Average cost of a two-bedroom flat in Manchester
How much the government has invested in the Northern Powerhouse initiative
Number of people now living in Manchester city centre
The young demographic is also a driving force in the number of rental properties in Manchester – which constitute two-thirds of the city centre’s housing stock. A fast-emerging trend is a build-to-rent market, which accounts for a large proportion of the 30 new residential developments currently being built.
“Professionally managed blocks of rental apartments with leisure facilities and concierge services are forcing private landlords to up their game, which is a positive thing.
“Shortly, we could see landlords offering similar white-label services such as local discounts and access to a network of handymen to stay competitive,” says Mr Whitten.
JLL identifies nine Manchester “sub-markets” that offer potential to investors, including the centrally located Northern Quarter, Piccadilly and Castlefields, with its urban canalside living. St John’s Deansgate has become a prime market, with sales there last year regularly exceeding £500 per square foot.
Across the River Irwell, suburban Salford is prominent on the radar of the millennial market seeking a lower-priced, higher-quality alternative to city-centre living.
Salford is also a key focus for buy-to-let investors, with Salford Quays now the UK’s second-biggest media hub, home to 80 media organisations.
“It has the benefits of being well connected to the city centre but better value in property terms. There are 7,500 homes in some phase of development in the Salford City Fringe, and Salford Quays attracts a professional audience, which makes it a good place to invest,” says Mr Whitten.
He thinks that another area to watch is Ancoats and New Islington, whose regeneration is largely funded by the owners of Manchester City Football Club.
As the momentum and investment continue in creating the Northern Powerhouse, Manchester is arguably the poster city and the greatest beneficiary so far, with a new arts centre, two new research institutes and improved transport infrastructure.
It has also seen the highest rate of job creation in the country, with the number of new jobs growing by 84pc between 1999 and 2015.
After years of blockbuster growth, home prices have reversed course and are expected to drop further over the next year. The number of sales has dropped, and more homeowners are pulling properties off the market.
The dour outlook comes courtesy of the Royal Institution of Chartered Surveyors (RICS), which warned in a report on Thursday that weakness in London had caused its UK house price indicator to hit a five-year low.
The government has in recent years hiked taxes on property purchases, making it more expensive to buy luxury housing, second homes and investment properties. Doing so has scared off some wealthy investors and caused prices to slump in central London.
Britain’s decision to leave the European Union has also hurt the market, with potential buyers putting their plans on hold because of the economic uncertainty.
One property professional surveyed by RICS said that Brexit and the tax changes had “killed the liquidity of the London market.”
London commuter belt towns fall down the rankings as Northampton, Leicester and Birmingham surge
Three of the top five locations for buy-to-let property investments are in the Midlands, according to new research.
Northampton, Birmingham and Leicester were all cited as top postcodes for buy-to-let, with strong rental growth of 2.38%, 3.91% and 4.35% respectively, according to independent mortgage lender LendInvest.
Whilst the Midlands regions have been steadily rising up the rankings, the report highlights the South West region as an up-and-coming market, as strong rental growth and healthy market activity has boosted the profile of cities like Bristol, Swindow, Truro and Gloucester.
Conversely, London and the South East continue to underperform, as declining rents deters further investment in these regional markets.
Historically strong performing commuter towns like Dartford, Romford and St Albans have recent begun to slide down the LendInvest buy-to-let rankings, in some cases by as many as 58 places.
However, the report notes that demand for housing will continue to support future growth: “Political changes are increasingly underpinning this uncertainty in the market, however the need for housing around the UK prevails.
“As such, we can expect the rental market to grow, with investors prioritising yields and rental price growth as valuable metrics to consider when purchasing a property.”
The Housing Secretary Sajid Javid has revealed a new government investment fund to help boost housing construction in Greater Manchester, Oxfordshire and the West of England.
Almost million is being put towards building more homes, as well as delivering local infrastructure projects like schools, roads and hospitals.
The fund is similar to the £ 120m grant to build 215,000 new homes in the West Midlands, announced by the Chancellor in the Spring Statement.
Of this, Greater Manchester is set to receive m to accelerate economic growth in the Northern Powerhouse and support the construction target of 227,200 new homes in the region by 2035.
An interim package of 120m will be given to the West of England, which covers Bristol, Bath, and parts of Gloucestershire and Somerset, to nearly double the number of new homes built each year from 4,000 to 7,500.
Oxfordshire will receive the rest of the funding, some m, which will support the construction of an additional 100,000 new homes by 2031, as well as the building of vital bridges, roundabouts and roads.
Meanwhile, the government announced that shortlisting has finished on bids for the bn Housing Infrastructure Fund, with 44 bids for high-impact infrastructure projects successfully progressing to the next assessment stage.
“This government is determined to build the homes this country needs,” Sajid Javid said of the fund. “That’s why we’re working with ambitious areas across England and backing them with investment and support.
“We’re also investing in local infrastructures like schools, roads and hospitals so that we can help unlock even more new homes in the areas where they’re needed most.