Treasury Market Commentary –

UK house prices drop for the first time in 15 months

A weekly economic update from our Treasury team.

Published

4th November 2022

Category

Macro Commentary

The Bank of England raised interest rates by 0.75%, its biggest hike in over 30 years, taking Bank Rate to 3.00%. Further hikes are likely in the coming months, though the Bank stressed the peak would be lower than market expectations, as the economy moves into a recession that is expected to last through 2023. The Bank also began unwinding its QE program by selling gilts, becoming the first central bank to do so. 

Market focus now turns to the government crucially important medium-term fiscal plans due on 17th November, and critically the independent Office for Budget Responsibility’s forecasts on how they would impact the economy and government debt levels. 

UK housing market data this week showed the first signs of a slowdown with prices falling for the first time in 15 months, as higher interest rates and the increasing cost-of-living begins to hit the consumer.

The Fed also raised its benchmark rate by 0.75%, taking the upper bound target to 4.00%, with US rates expected to peak at 5.00% next year. The focus was on chair Powell’s comments, stating that although the pace of hikes may slow, the terminal rate could end up higher than previously thought.

In the EU, higher than expected inflation data this week, against the backdrop of slowing growth, further highlights the challenges facing the central bank following last week’s rate hike. European Central Bank members underlined the need for higher rates, even at the expense of driving the economy into recession.

Today, focus shifts to the US payrolls data due at 12.30pm, with further critical data due next week, including US inflation and UK growth numbers, that will only add to the current volatility.

On the exchanges, the dollar strengthened considerably following this week’s central bank action.

GBP/USD – 1-year chart

“”

Week Ahead

Date

Release

Last

Expected*

10/11/22

UK RICS House Price Balance

32%

n/a

10/11/22

US CPI YoY

8.2%

8.1%

11/11/22

UK GDP QoQ

0.2%

n/a

11/11/22

UK GDP YoY

4.4%

n/a

11/11/22

UK Manufacturing Prod. YoY

-6.7%

n/a

*Bloomberg survey / Not available  

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1215

USD/JPY

147.65

GBP/EUR

1.1470

AUD/USD

0.6360

EUR/USD

0.9780

USD/CHF

1.0100

GBP/AED

4.1200

XAU/USD

1648

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7186

-2.69%

S&P

3719

-21.95%

EUROSTOXX

3593

-16.40%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.41%

5-year

+4.14%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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Weekly

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