The UK sees falling house prices and production data

Today is one of the data days for the UK economy so let us get straight to one of the priorities of the Bank of England. From the Halifax.

House prices have flattened over the past three months. Overall, prices in the three months to June were marginally lower than in the preceding three months. The annual rate of growth has fallen, to 2.6%; the lowest rate since May 2013.

The timing is significant as the Funding for (Mortgage) Lending Scheme of the Bank of England began in the summer of 2013. This kicked off the rises in UK house prices we have seen. However Governor Carney’s morning espresso will have a taste analogous to corked wine as he notes these numbers and looks at the £75.5 billion of cheap funding he has given the banks since last August via the Term Funding Scheme. Can’t a central banker even bribe the banks to do things anymore?

There was in the report some grist to my mill if you recall that I warned that house prices looked like they would slip slide away in 2017.

House prices fell by 1.0% between May and June. This was the first monthly decline since January (1.1%)……House prices in the last three months (April-June) were 0.1% lower than in the previous three months (January March). This was the third successive quarterly fall; the first time this has happened since November 2012.

As you can see we are now looking back nearly five years to a different time when we had just emerged from worrying about a possible “triple dip” in the UK economy. However if we look for perspective the overall picture is as shown below.

Nationally, house prices in June 2017 were 9% above their August 2007 peak. The average house price of £218,390 is £63,727 (41%) higher than its low point of £154,663 in April 2009.

Of course this hides a large amount of regional variations as some places have struggled whilst London has soared. Also tucked away there was something rather unexpected unless the bank of mum and dad is at play.

The number of first-time buyers (FTBs) reached an estimated 162,704 in the first half of 2017, only 15% below the peak in 2006 (190,900), according to the latest Halifax First Time Buyer Review. The number of new buyers is up from 154,200 in the same period in 2016 and more than double the market low in the first half of 2009 (72,700).

The Real Economy

This morning has not been a good day for the underlying UK economy as we note the production figures.

In the 3 months to May 2017 compared with the 3 months to February 2017, the Index of Production was estimated to have decreased by 1.2%, due mainly to falls of 1.1% in manufacturing and 3.5% in energy supply.

As we have a wry smile one more time about the ( good in this instance) poor old weather taking the blame we see some poor figures. If we look at the month in isolation we continue to be disappointed.

In May 2017, total production was estimated to have decreased by 0.1% compared with April 2017, due to falls of 0.2% in manufacturing and 0.8% in energy supply; transport equipment provided the largest contribution to the manufacturing decrease, followed by food products, beverages and tobacco.

The bit that stands out there is the reference to transport equipment as that is consistent with other data showing a slowing in this area. Whilst engine production was up car production was down. Also these numbers fit very badly with the Markit PMI reading of 56.3 for May which indicated a good rate of growth as opposed to the fall reported by the official data.

Looking deeper I see that the wild and erratic ride of the pharmaceutical sector continues.

The decrease in manufacturing is due mainly to the highly volatile pharmaceutical industry, which fell by 7.8%, following a decrease of 12.0% in the 3 months to April 2017.

It rose by 1.1% in May and if we look at its pattern it should do better and help out in July so fingers crossed.


Here the news was much more normal although in this area that means bad.

Between April and May 2017, the total trade (goods and services) deficit widened to £3.1 billion, reflecting an increase in imports on the month (2.7%). The main contributor to this was an increase in imports of trade in goods….. There was a larger increase in goods imported from non-EU countries, mainly due to increases in mechanical machinery, followed by material manufactures (non-ferrous metals and silver) and oil.

If we look for some more perspective the same general pattern is to be seen.

Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) deficit widened from £6.9 billion to £8.9 billion.

A driver of this again appears to be a weaker phase for the UK automotive industry.

driven predominantly by increased imports of goods from non-EU countries; transport equipment (cars, aircraft and ships), oil and electrical machinery were the main contributors to this increase.

These numbers are of course just more in a decades long series of deficits. Also I note that the figures have yet to regain “national statistics” status so they are more unreliable than usual.

Some better news came on the inflation front as we had another data set which indicated that the inflationary pressure is easing.

Between April 2017 and May 2017, goods export and import prices decreased by 1% and 0.8% respectively……. the sterling price of crude oil decreasing by 6.2% in the 3 months to May 2017


The same beat was hammered out by these numbers today.

Construction output fell in May 2017 by 1.2%, in both the month-on-month and 3 month on 3 month time series…….The 3 month on 3 month decrease represents the largest 3 month on 3 month fall in output since September 2012, driven by falls in both repair and maintenance, and all new work.

This was particularly unexpected because for a start the warm weather which took some of the blame for the industrial production fall is usually a boost to construction. Also all the talk of higher infrastructure spending seems to have met a somewhat different reality.

most notably from infrastructure, which fell 4.0% following strong growth in April 2017.

Oh and yet again we have rather a mis-match with the business survey from Markit.


There were two bits of good economic news today. These were that the inflationary burst looks like it is fading and that house prices have stopped rising and may be falling. Of course the Bank of England will no doubt consider this as bad news. On the other side of the coin we are now in the phase where post the EU Leave vote the economic water was always likely to be colder and more choppy. We are in a phase where production and manufacturing are struggling with little sign that trade is providing much of a boost. Care is needed with the numbers as ever ( especially construction and trade) but our economy is now only grinding ahead and won’t be helped by this news from yesterday and the emphasis is mine.

Despite improvements in both GDP per head and NNDI per head, real household disposable income (RHDI) per head declined by 2.0% in Quarter 1 2017 compared with the same quarter a year ago

Please spare a thought for Bank of England Chief Economist Andy Haldane at this difficult time. For newer readers this “sage” pushed for a “Sledgehammer” expansion of policy when the economy was doing okay and has now switched to talking about rate rises as it slows fulfilling the policy making nightmare of being pro cyclical.

Some Friday Humour

I bring you this from the Wall Street Journal last night.

Japan shows Europe how to dial back stimulus without spooking investors

Only a few hours later Business Insider was reporting this.

the Bank of Japan (BoJ) went all-in earlier today, pledging to buy an unlimited amount of 10-year bonds at a yield

Up is the new down yet again.

British and Irish Lions

I hope that our Kiwi contingent will not be too offended if I wish the Lions all the best for their historic opportunity tomorrow. Victories in New Zealand are rarer than Hen’s teeth can they manage 2 in a row? Here’s wishing and hoping…….



19 thoughts on “The UK sees falling house prices and production data

    • Our extended family consists of English (me), American and kiwi.. the America’s Cup quickly followed by the Lions tour certainly causes tension. The Royal Yatch Squadron lost the Cup in 1851 followed by the longest winning streak in sporting history…… and the Lions won their last game against the ABs and the kiwis hold the America’s Cup. So everybody’s happy,…… I think. …for now….

        • Well! What about that , Shaun. A Draw! Just short of that one point you wanted. Well done the Lions.
          I’m happy; not sure about the rest of the household.

          • What a great game 🙂 Two teams scrapping it out and somehow we hung in there in the first half when the All Blacks threatened to run riot. I will take the draw with a smile.

        • Hi Shaun,

          The Lions where a breath of fresh air as we got to see contrasting styles of rugby for a change.
          Where the Lions won was with their fans. What a great bunch of passionate supporters. They are welcome here any time. It is a pity you did not come out I think you would of had a great time.

          • Hi David

            Thank you. It turned into a great tour I think. There had been a fait bit of carping up here but the matches turned that around and the rugby equivalent of the barmy army were always a strength.
            I enjoyed the contrasting styles as well and was especially impressed with your locks. Also the confidence of your fly halves in kicking to the wingers. It is a shame it will not happen again for 12 years.

  1. You not think someone from Tory HQ would have had a word with Carnage about letting the housing bubble burst. Its going to burst anyway the housing shortage is complete and utter nonsense and i find it appalling this gets trotted out as the reason for unaffordbale housing by our Orwellian MSM to brain wash the masses … when prices are insane due to cheap loose lending aided by TFS/FFL/QE/HTB/ZIRP, not because the state funded building monopoly build 50,000 slave boxes a year less. (which would get snapped up by landlords/foreigners anyway)

    If the Tory party dont get more under 45s (divorcees) owning houses by the next election then they’re toast. As Andrew Neil recently said on TV why would the young vote for a party who claim to be capitalists (they’re not) when they can’t amass any capital.

    May be just blind optimism but surely they’ve twigged you can’t run an economy based on young and not so young renting off the old and those with BTL deposits.

    • Bang on yet again Arthur, if the Tories weren’t already toast as far as the next election is concerned, a significant drop in house prices will seal their fate.

      The average voter wants house price inflation and lots of it, and since the electorate seem to be now voting for the party who gives away the most “free” stuff, Labour are a shoe in, take into account the high inflation their policies will engender, and (whether the average voter has worked that out he will be rewarded or not) he certainly will.

  2. ‘If the Tory party dont get more under 45s (divorcees) owning houses by the next election then they’re toast. As Andrew Neil recently said on TV why would the young vote for a party who claim to be capitalists (they’re not) when they can’t amass any capital.’

    Absolutely bang on the money Arthur.

    There’s only one reason they’re going to be allowed to drop and that’s because it serves the interests of the political class.

  3. ‘Despite improvements in both GDP per head and NNDI per head, real household disposable income (RHDI) per head declined by 2.0% in Quarter 1 2017 compared with the same quarter a year ago’

    Shaun with regard to this data,I presume the situation is even worse in the working age households cohort given that Pension incomes have the protection of triple lock?

    • Hi Dutch

      Your comment made me recheck the report to see if it gave that sort of breakdown. It does not so but yes I think that it does have to mean that although technically you could argue that the pensioners do not get fully compensated until later as in effect they receive inflation compensation in lagged terms.

  4. Sorry to spam the thread,but it’s also worth noting that certain parts of London are dropping quite heavily in price terms although transaction levels are quite low and can be skewed by the housing mix that transacts.

    From peak
    WC1H,WC1X,W1K,W1W,SW1W,all 20%+,most NW postcodes are negative single figures,W8 is tanking nicely down10%+,N5 is down 15% although other N postcodes are at peak.
    I suspect the housing figures will get worse given that London led us into the bubble with some postcodes trebling to peak from 2008.

    Interesting times.

    • The stamp duty increases have had quite a big effect on the pricier parts of London. Once you get to the places where homes cost millions and millions a 12% transaction tax is very unattractive. I wonder if there might be some sort of Laffer curve effect here, perhaps stamp duty is so high that less revenue is being collected than if it were a bit lower?
      I was amused to hear a view expressed the other day that if the Qatar situation gets really nasty that might kick start the super-prime London market again by providing it with some well-heeled refugees! It sounded a bit desperate to me but might have some truth to it.

  5. Shaun, thanks for picking out the data. It’s an unwelcome message, so best for the media to be swayed along the lines of prices aren’t rising as fast as they were. I mean its not quite the same as broadcasting that they are falling!

    Your last fragment cannily points the way, we’ve runout of bazooka phrases… what ever it takes… but I am sure that the BoE along with Govt will be considering all options to stabilise the property market. A properly falling market is very difficult to stop since “animal spirits” take over. Best for them to throw tons of support in early to shore it up.

    I think it is revealing how all those mark to market tools, web networked online property searches suddenly can broadcast the red ink as well as in the past the black ink. FT stories recount how the sellers of prime have actively avoided boradcasting availability, for fear of suffering mark to market publicity. Those sellers authorising agents to make private approaches and settle in a private one to one way.

    It does make a mockery of all the supposed benefits of the internet when folk actively avoid it.

    Paul C.

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