UK mortgage lenders are jostling for new customers by cutting rates, as analysts predict a boom in the housing market by the autumn, with Wednesday's slightly higher headline inflation figure not expected to derail interest rate cuts.
The battle between lenders was sparked by the Bank of England's first cut to interest rates in four years earlier this month.
“With UK rates coming down, mortgages are getting more affordable, cancellation rates are easing, and there’s generally more of a buzz about housing stocks,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
Another cut to interest rates might be due before the end of the year if inflation data doesn't pose too many concerns for the Bank of England.
However, there was proof that inflation has not been completely defeated on Wednesday, as the market waits for further cuts to interest rates in 2024.
New data showed a slight upwards tick in the rate of inflation from 2 per cent in June to 2.2 per cent in July, still slightly shy of the 2.3 per cent increase forecast by economists polled by the business data company FactSet.
However, those hoping for a September repeat of the Bank of England's 0.25 per cent cut to interest rates earlier this month are likely to be disappointed, as economists comment on the continuing 'stickiness' of inflation.
“What will be disappointing, however, is the prospect that the next rate reduction may get delayed until later in the year,” said Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.
“The stronger inflation reading now sits above the Bank of England’s inflation target of 2 per cent, causing complications for the central bank as it shifts towards a lower interest rate environment.”
Core inflation, which strips out energy, food, alcohol and tobacco, rose by 3.3 per cent in the 12 months to July, down from 3.5 per cent in June. Inflation in the services sector also fell from 5.7 per cent in June to 5.2 per cent in July.
Ruth Gregory, deputy chief UK economist at Capital Economics noted that even though the inflation numbers will not completely eradicate the Bank of England's concerns over “persistent price pressures”, interest rates should eventually fall “further and faster than markets expect”.
“Accordingly, we are sticking to our view that the Bank will pause in September, and that fading services inflation will mean rates fall to 4.5 per cent this year and 3 per cent next year.”
On Tuesday, robust unemployment and wage numbers again made the case that consumer price index inflation is still prominent, despite falling from a high of 11.1 per cent in October 2022 to the Bank of England's goal of 2 per cent in both May and June this year.
Annual growth in employees' average earnings, excluding bonuses was 5.4 per cent in the three months from April to June down from 5.8 per cent between March and May this year, according to the Office for National Statistics.
The ONS said the rate of unemployment during the April to June period fell to 4.2 per cent from 4.4 per cent in the previous three months.
For Monica George Michail, associate economist at the National Institute for Economic and Social Research the figures indicated “wage growth is gradually slowing but still remains strong”.
“We expect wage pressures to continue falling gradually in the coming months as the labour market cools, with unemployment rising relative to vacancies”, she said.
Meanwhile, a host of mortgage lenders in the UK have been slashing the rates on their products.
On Tuesday, NatWest Bank cut rates across a host of products bringing some on residential loans down to 3.89 per cent, while last Friday, Santander cut rates on some of its mortgages by 0.27 per cent.
The moves follow similar by other lenders in recent days, including Nationwide, Halifax, Barclays and HSBC, as the sub-4 per cent mortgage deal returned to the market in a wave of new offerings.
Virgin Money was one of the first mortgage lender to drop rates below 4 per cent for those with smaller deposits, which typically tend to be first-time buyers. It is offering a 3.99 per cent, five-year fixed rate deal with a fee of £995.
Changing the goalposts
One person who will be paying close attention to the inflation figures is the UK chancellor Rachel Reeves.
The health of the British economy and its ability to grow is fundamental to her tax and spending plans, which will be unveiled in her first budget in the autumn.
However, some economists wonder if she's painting herself into a fiscal corner and may have to radically adjust her plans and expectations.
After an audit of Britain's public finances last month, Ms Reeves announced a £22 billion 'black hole' in the nation's accounts, much of which she was quick to blame on the previous government, even though economists point out that at least £9 billion was down to pay rises for public sector workers.
Nonetheless, the figures served as an unexpected sideswipe at the chancellor's plans, which included no rises to income taxes, national insurance or VAT.
The 'black hole' figures also led Ms Reeves to immediately announce reduced investment in some road and rail projects, while fiscal experts predicted rises in capital gains and inheritance taxes in her Budget at the end of October.
“Unless the budget really makes the case for capital spending, then it’s not clear where growth is coming from,” said Adrian Pabst, deputy director at NIESR. “It’s a mistake to begin with pausing capital spending because it sends a worrying signal.”
One textbook tweak she could make is to change the debt number used in the calculations, a move which some say could allow £16 billion of borrowing.
In a bid to show themselves as the party of economic stability, during the recent election, Labour promised to stick rigidly to rules that require debt to fall as a share of GDP in the fifth year of a Labour government.
So, while the chancellor may not be able to change the rules of the game, she could move the goalposts.
The two main measures of government debt used by forecasters, politicians and chancellors are public sector net debt and public sector net debt excluding the Bank of England, which is sometimes referred to as 'underlying debt'.
The previous Conservative government used the underlying debt figure for its debt target, but the new chancellor could opt to use the headline PSND figure, which would give some 'headroom' for government borrowing.
“One simple change the new government could make would be to instead aim to have headline PSND falling by the fifth year of the forecast,” the Institute of Fiscal Studies (IFS) said in a report last week.
'Fiscal jiggery-pokery'
The question economists are asking is: should the new government make this seemingly innocuous switch to using a slightly different debt figure?
The IFS argues it definitely could, and such a move “seems unlikely to spark an adverse political or market reaction – particularly if any additional margin against a redefined fiscal rule is used for public investment”.
But whether a government should tweak the rules, simply to try to get itself out of a fiscal 'black hole' is more questionable, the IFS said.
“If the government wants to borrow more and spend more, it would ideally make the case for doing so on its own terms, rather than hide behind fiscal jiggery-pokery,” it said.
Stuart Cole, chief macroeconomist at Equiti Capital agrees that if the government wants to borrow and spend more it should “make the case for doing so using its own arguments, rather than resorting to accounting ruses that not many people understand”.
“In any event, the extra borrowing this £16 billion of fiscal headroom will create is unlikely to plug the spending gap the government claims to be facing,” he told The National.
“Neither is extra borrowing of this size likely to materially impact the Bank of England’s thinking on interest rates and inflation. The sums are just too small.”
However, even considering such a move shows that Ms Reeves and her colleagues at the UK Treasury are pulling all the levers they can to kick-start the British economy.
Economists at the NIESR have already urged the new government to grow capital spending by £50 billion to light a fire underneath the UK's sluggish economic growth and to exclude that investment from debt rules.
Without something bold being done on the investment front, Mr Pabst said the UK economy risks being “trapped” in “low investment, low growth (and) flatlining productivity”.
What are the GCSE grade equivalents?
- Grade 9 = above an A*
- Grade 8 = between grades A* and A
- Grade 7 = grade A
- Grade 6 = just above a grade B
- Grade 5 = between grades B and C
- Grade 4 = grade C
- Grade 3 = between grades D and E
- Grade 2 = between grades E and F
- Grade 1 = between grades F and G
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
UAE currency: the story behind the money in your pockets
What it means to be a conservationist
Who is Enric Sala?
Enric Sala is an expert on marine conservation and is currently the National Geographic Society's Explorer-in-Residence. His love of the sea started with his childhood in Spain, inspired by the example of the legendary diver Jacques Cousteau. He has been a university professor of Oceanography in the US, as well as working at the Spanish National Council for Scientific Research and is a member of the World Economic Forum’s Global Future Council on Biodiversity and the Bio-Economy. He has dedicated his life to protecting life in the oceans. Enric describes himself as a flexitarian who only eats meat occasionally.
What is biodiversity?
According to the United Nations Environment Programme, all life on earth – including in its forests and oceans – forms a “rich tapestry of interconnecting and interdependent forces”. Biodiversity on earth today is the product of four billion years of evolution and consists of many millions of distinct biological species. The term ‘biodiversity’ is relatively new, popularised since the 1980s and coinciding with an understanding of the growing threats to the natural world including habitat loss, pollution and climate change. The loss of biodiversity itself is dangerous because it contributes to clean, consistent water flows, food security, protection from floods and storms and a stable climate. The natural world can be an ally in combating global climate change but to do so it must be protected. Nations are working to achieve this, including setting targets to be reached by 2020 for the protection of the natural state of 17 per cent of the land and 10 per cent of the oceans. However, these are well short of what is needed, according to experts, with half the land needed to be in a natural state to help avert disaster.
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
KILLING OF QASSEM SULEIMANI
Killing of Qassem Suleimani
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Sim swap frauds are a form of identity theft.
They involve criminals conning mobile phone operators into issuing them with replacement Sim cards, often by claiming their phone has been lost or stolen
They use the victim's personal details - obtained through criminal methods - to convince such companies of their identity.
The criminal can then access any online service that requires security codes to be sent to a user's mobile phone, such as banking services.
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Conflict, drought, famine
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
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Defence review at a glance
• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”
• Prioritise a shift towards working with AI and autonomous systems
• Invest in the resilience of military space systems.
• Number of active reserves should be increased by 20%
• More F-35 fighter jets required in the next decade
• New “hybrid Navy” with AUKUS submarines and autonomous vessels
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Bantamweight:
Zia Mashwani (PAK) bt Chris Corton (PHI)
Super lightweight:
Flavio Serafin (BRA) bt Mohammad Al Khatib (JOR)
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Dwight Brooks (USA) bt Alex Nacfur (BRA)
Bantamweight:
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Featherweight:
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Middleweight:
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Middleweight:
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Welterweight:
Khamzat Chimaev (SWE) bt Mzwandile Hlongwa (RSA)
Lightweight:
Alex Martinez (CAN) bt Anas Siraj Mounir (MAR)
Welterweight:
Jarrah Al Selawi (JOR) bt Abdoul Abdouraguimov (FRA)
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Key recommendations
- Fewer criminals put behind bars and more to serve sentences in the community, with short sentences scrapped and many inmates released earlier.
- Greater use of curfews and exclusion zones to deliver tougher supervision than ever on criminals.
- Explore wider powers for judges to punish offenders by blocking them from attending football matches, banning them from driving or travelling abroad through an expansion of ‘ancillary orders’.
- More Intensive Supervision Courts to tackle the root causes of crime such as alcohol and drug abuse – forcing repeat offenders to take part in tough treatment programmes or face prison.
It
Director: Andres Muschietti
Starring: Bill Skarsgard, Jaeden Lieberher, Sophia Lillis, Chosen Jacobs, Jeremy Ray Taylor
Three stars
Paltan
Producer: JP Films, Zee Studios
Director: JP Dutta
Cast: Jackie Shroff, Sonu Sood, Arjun Rampal, Siddhanth Kapoor, Luv Sinha and Harshvardhan Rane
Rating: 2/5
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PFA Team of the Year: David de Gea, Kyle Walker, Jan Vertonghen, Nicolas Otamendi, Marcos Alonso, David Silva, Kevin De Bruyne, Christian Eriksen, Harry Kane, Mohamed Salah, Sergio Aguero
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
