UK house prices fall after mini-budget shock, but CEO pay soars – business live

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China has suffered its first contraction in international trade since May 2020, early in the pandemic, in a sign that the global economy is slowing.

Exports and imports unexpectedly contracted in October, as Chinese firms were hit by Covid-19 curbs at home and the global slowdown.

Exports fell by 0.3% year-on-year, a stark reversal on the 5.7% growth in September, and the biggest drop since May 2020. Economists had expected a small slowdown, to 4.3% growth.

This tumble in exports comes as the energy crisis threatens to push Europe into recession, while the UK economy could also already be shrinking.

Inports of goods fell 0.7%, suggesting China’s domestic economy was fragile.

Exports to Europe (-9% year-on-year) and to the US (-13% y/y) both fell, but there was an annual rise in shipments to Southeast Asia.

Zhang Zhiwei, president and chief economist of Pinpoint Asset Management, explains (via Bloomberg):

“The weak export growth likely reflects both poor external demand as well as the supply disruptions due to Covid outbreaks.

“I expect export growth to remain weak in the next few months as the global economy slows.”

Iris Pang of ING says:

Covid cases started to climb in October but have affected factory activity only slightly, and there were no cases found in ports. So we can rule out shipment delays as a factor in the contraction.

Inflation in Europe and the US continued to be high, which could be a factor. Slower imports of electronic products paint a similar picture.

If this is the reason for the contraction in China’s international trade in October then we should expect the contraction to continue as our economists covering Europe and the US project a recession in these two economies.

Apple is warning customers they’ll have to wait longer to get its latest iPhone models after anti-virus restrictions were imposed on a contractor’s factory in central China.

The company announcement on Sunday gave no details but said the factory operated by Foxconn in the central city of Zhengzhou is “operating at significantly reduced capacity.”

Apple said:

“We now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated. Customers will experience longer wait times to receive their new products.”

Last week, Chinese authorities announced a seven-day coronavirus lockdown in the area around Foxconn’s plant – the world’s largest iPhone factory – as China continues with its ‘zero-Covid’ policy.

Elliott Benson, mortgage broker at Sett Mortgages, predicts house prices will fall over the next year.

Last week’s interest rate rise, from 2.25% to 3%, will also weigh on the market, Benson adds:

“The mini-Budget, or at least what happened after it, hit sentiment like a sledgehammer. And even though we all knew last week’s interest rate rise was coming, it will still have proved a further shock to many homeowners, especially those who took out sizeable mortgages at record low rates.

Higher rates mean people won’t be able to borrow as much, which in turn means they won’t be able to offer as much for property. House prices will invariably head south during the next 12 months as people adjust to the new rate environment.

North London estate agent Jeremy Leaf says some prospective buyers have returned to the market, since mortgage rates stabilised:

‘These comprehensive figures are particularly interesting as the modest monthly fall in house prices shows on the one hand the resilience of the market in the period leading up to the mini-Budget, as well as the uncertainty which followed.

‘Since then, we’ve seen on the ground a combination of those trying to take advantage of attractive mortgage offers and new buyers slowly emerging now mortgage rates are steadying and even starting to fall.

But we are not seeing any collapse in pricing or sales agreed.

Avinav Nigam, cofounder of real estate investment platform, IMMO, is seeing signs of a housing slowdown:

‘We are seeing property listings falling by 15 to 20 per cent in some parts of the UK, as uncertainty encourages property owners to delay transaction decisions.

That will put more pressure on the rental market, Nigam adds:

‘As it becomes harder and more expensive to buy, demand for rental properties is expected to grow. Meanwhile, many smaller private investors are exiting due to higher finance and regulatory compliance costs.

There’s a clear opportunity for professional providers of safe, quality and affordable rental housing for the UK.’

House prices have probably peaked following the boom in the pandemic, says Tom Bill, head of UK residential research at Knight Frank:

Bill expects prices will fall back to last summer’s levels:

“There was a sharp intake of breath in the UK housing market last month due to the impact of the mini-Budget but that doesn’t mean prices are now on a steeper downwards trajectory. We expect mortgage rates to calm down in the short-term as financial markets respond to the new government but it’s a fair assumption that house prices have peaked following growth of more than 20% during the pandemic.

After 13 years of ultra-low borrowing costs, anyone buying a house or re-mortgaging will recognise the ground has shifted, which is the reason we expect prices to fall back to the level they were at in summer 2021.”

Back in August 2021, the average house price was ?262,954, which is around 10%, or ?30,000, below the ?292,598 recorded in October.

Property price inflation weakened across all buyer types during October, led by first-time buyers.

People taking their first step on the housing ladder paid 7.5% more than a year ago for their property, on average, sharply down on 10.1% in September.

Annual price growth among existing homemovers fell to +8.9% from +10.3%.

The relatively faster slowdown in prices for first-time buyers is not surprising, Halifax says, given the challenge raising a deposit in the current economic slowdown, and tighter requirements for higher loan-to-value mortgages.

Pay restraint for thee, but not for me.

That’s the mantra in UK boardrooms, it seems, after top bosses enjoyed another year of strong earnings growth.

FTSE 100 chief executives’ pay soared by an average of 23% this year, according to research from PwC, at a time when workers are seeing real terms pay cuts (and now seeing falling house prices too).

The jump in average pay, to close to ?4m, was driven by record bonus payouts – as CEO’s aced lower targets set during the pandemic.

The Financial Times has the story, and explains:

Many companies bounced back strongly as Covid-19 lockdowns ended, leading to an average CEO bonus of 86 per cent of the maximum available, up from 58 per cent last year and against a long term average of 70 to 75 per cent, according to PwC.

The higher bonuses took overall average pay up from pre-pandemic levels of ?3.6mn in 2018-19 and ?3.7mn for 2017-18.

Andrew Page, executive compensation leader at PwC UK, reckons CEOs will face greater scrutiny from shareholders at the next AGM season.

Such large pay rises for multimillionaires are “far from ideal at a time when their lower-paid colleagues are denied a pay rise that keeps up with inflation,” points out Luke Hildyard, director of the High Pay Centre think-tank.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house prices fell in October at the fastest rate since early last year, as the market was rocked by the fallout from the disastrous mini-budget.

The average house price fell by 0.4% in October, figures just released by the Halifax building society shows. That’s the sharpest fall on Halifax’s index since February 2021, following a 0.1% drop in September.

That pulls the annual rate of house price inflation down to 8.3% from 9.8%, and means the typical UK property now costs ?292,598, down from ?293,664 last month.

The market cooled as hopeful housebuyers saw mortgage rates surge, with lenders removing thousands of offers as the cost of borrowing rocketed. The average two-year fixed-rate home loan jumped over 6.5% in October, from below 5% before the mini-budget.

Average prices remain near record highs, but the recent period of rapid house price inflation may now be at an end, warns Kim Kinnaird, director at Halifax Mortgages.

Kinnaird explains that the surge in UK costs following former chancellor Kwasi Kwarteng’s package of unfunded (and now abandoned) tax cuts was a ‘significant shock’:

While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate increases.

While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

Annual house price growth slowed in every region of England apart from the North East, and also slowed in Northern Ireland, Scotland, and Wales.

Halifax’s survey matches a similar report from Nationwide last week, which also showed a fall in house prices last month.

Many economists have predicted that house prices could fall by around 10% next year, as the UK falls into recession and households are squeezed hard by surging energy and food prices.

Kinnaird predicts a ‘much slower period for house prices’, as Kwarteng’s successor, Jeremy Hunt, prepares a package of hefty tax rises and spending cuts.

“Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining. The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels.

With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.

The agenda

7am GMT: German industrial production for September

8.30am GMT: Eurozone construction PMI

11am GMT: BBA survey of average mortgage rate in the UK

5pm GMT: Virtual Q&A with Bank of England chief economist, Huw Pill