Good to see UK wages rising much faster than house prices at last

Today feels like spring has sprung and I hope it is doing the same for you, or at least those of you also in the Northern Hemisphere. The economic situation looks that way too at least initially as China has reported annual GDP growth of 6.4% for the first quarter of 2019. However the industrial production data has gone in terms of annual rates 5.8%,5.9%,5.4%,5.7%, 5.3% and now 8.7% in March which is the highest rate for four and a half years. Or as C+C Music Factory put it.

Things that make you go, hmm
Things that make you go, hmm
Things that make you go, hmm, hey
Things that make you go, hmm, hmm, hmm

In the UK we await the latest inflation data and we do so after another in a sequence of better wage growth figures. In its Minutes from the 20th of March the Bank of England looked at prospects like this.

Twelve-month CPI inflation had risen slightly in February to 1.9%, in line with Bank staff’s expectations
immediately prior to the release, and slightly above the February Inflation Report forecast. The near-term path
for CPI inflation was expected to be a touch higher than at the time of the Committee’s previous meeting,
though remaining close to the 2% target over the coming months. This partly reflected a 6% increase in sterling
spot oil prices, and the announcement by Ofgem on 7 February of an increase in the caps for standard variable
and pre-payment tariffs, from April, which had been somewhat larger than expected.

I do like the idea of claiming you got things right just before the release, oh dear! Also it is not their fault but the price cap for domestic energy rather backfired and frankly looks a bit of a mess. It will impact on the figures we will get in a month.


Let us open with the oil prices mentioned by the Bank of England as the price of a barrel of Brent Crude Oil has reached US $72 this morning. So a higher oil price has arrived although we need context as it was here this time last year. The rise has been taking place since it nearly touched US $50 pre-Christmas. Putting this into context we see that petrol prices rose by around 2 pence per litre in March and diesel by around 1.5. So this will be compared with this from last year.

When considering the price of petrol between February and March 2019, it may be useful to note that the average price of petrol fell by 1.6 pence per litre between February and March 2018, to stand at 119.2 pence per litre as measured in the CPIH.

Just for context the price now is a penny or so higher but the monthly picture is of past falls now being replaced by a rise. Also just in case you had wondered about the impact here it is.

A 1 pence change on average in the cost of a litre of motor fuel contributes approximately 0.02 percentage points to the 1-month change in the CPIH.

If we now switch to the US Dollar exchange rate ( as the vast majority of commodities are priced in dollars) we see several different patterns. Recently not much has changed as I think traders just yawn at Brexit news although we have seen a rise since it dipped below US $1.25 in the middle of December. Although if we look back we are around 9% lower than a year ago because if I recall correctly that was the period when Bank of England Governor Mark Carney was busy U-Turning and talking down the pound.

So in summary we can expect some upwards nudges on producer prices which will in subsequent months feed onto the consumer price data. Added to that is if we look East a potential impact from what has been happening in China to pig farming.

Chinese pork prices are expected to jump more than 70 percent from the previous year in the second half of 2019, an agriculture ministry official said on Wednesday………China, which accounts for about half of global pork output, is struggling to contain an outbreak of deadly African swine fever, which has spread rapidly through the country’s hog herd.

That is likely to have an impact here as China offers higher prices for alternative sources of supply. So bad news for us in inflation terms but good news for pig farmers.

Today’s Data

I would like to start with something very welcome and indeed something we have been waiting for on here for ages.

Average house prices in the UK increased by 0.6% in the year to February 2019, down from 1.7% in January 2019 . This is the lowest annual rate since September 2012 when it was 0.4%. Over the past two years, there has been a slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

This means that if we look at yesterday’s wage growth data then any continuation of this will mean that real wages in housing terms are rising at around 3% per annum. There is a very long way to go but at least we are on our way.

The driving force is this and on behalf of three of my friends in particular let me welcome it.

The lowest annual growth was in London, where prices fell by 3.8% over the year to February 2019, down from a decrease of 2.2% in January 2019. This was followed by the South East where prices fell 1.8% over the year.

As they try to make their way in the Battersea area prices are way out of reach of even what would be regarded as good salaries such that they are looking at a 25% shared appreciation deal as the peak. Hopefully if we get some more falls they will be able to average down by raising  to 50% and so on but that is as Paul Simon would say.

Everybody loves the sound of a train in the distance
Everybody thinks it’s true

One development which raises a wry smile is that house price inflation is now below rental inflation.

Private rental prices paid by tenants in the UK rose by 1.2% in the 12 months to March 2019, up from 1.1% in February 2019……..London private rental prices rose by 0.5% in the 12 months to March 2019, up from 0.2% in February 2019.

What that tells us is not as clear as you might think because the numbers are lagged. Our statisticians keep the exact lag a secret but I believe it to be around nine months. So whilst we would expect rents to be pulled higher by the better nominal and real wage data the official rental series will not be showing that until the end of the year


The development of real wages in housing terms is very welcome. Of course the Bank of England will be in a tizzy about wealth effects but like so often they are mostly for the few who actually sell or look to add to their mortgage as opposed to the many who might like to buy but are presently priced out. Also existing owners have in general had a long good run. Those who can think back as far as last Thursday might like to mull how house price targeting would be going right now?

Moving to consumer inflation then not a lot happened with the only move of note being RPI inflation nudging down to 2.4%. The effects I described above were in there but an erratic item popped up and the emphasis is mine.

Within this group, the largest downward effect came from games, toys and hobbies, particularly computer games

If a new game or two comes in we will swing the other way.

Looking further up the line I have to confess this was a surprise with the higher oil price in play.

The growth rate of prices for materials and fuels used in the manufacturing process was 3.7% on the year to March 2019, down from 4.0% in February 2019.

So again a swing the other way seems likely to be in play for this month.

Meanwhile,what does the ordinary person think? It is not the best of news for either the Bank of England or our official statisticians.

Question 1: Asked to give the current rate of inflation, respondents gave a median answer of 2.9%, compared to 3.1% in November.

Question 2a: Median expectations of the rate of inflation over the coming year were 3.2%, remaining the same as in November.

16 thoughts on “Good to see UK wages rising much faster than house prices at last

    • I bet none of the establishment dupes gluing themselves to various things around the country, ends up dead, as is liable to happen if you are anywhere near a protest against global capitalism, like Ian Tomlinson.
      And as for the schoolchildren playing truant for climate change? How Maoist, and how telling that none of the children’s parents face sanctions from their schools.

  1. Hello Shaun,

    My take on the SE housing market is that it is weaker than these official figures . Many have been reduced . I still have my late father’s property up for sale and although the estate agents all give the same BS of how they can sell it at XXX when it comes to it they are straight back whining on about reductions – this can be seen in Right move if you care to take a look.

    Needless to say after dropping the price from their suggested starting prices I still haven’t found anyone who wants to buy . Foot fall has been weak.

    So I think yes I’d have to reduce again ( and possibly again ) to find a sale……

    Again its the high end market that appears to be affected at around 10%

    I suspect many in London and SE as buyers will or have got the message.

    but has the BoE ? they seem always to be late to the party !

    Going to be interesting 😉


    • Hi Forbin,
      I have sympathy for your position as after all the prior overheating of the market, now you come to sell, the buyers are no longer so rabid and enthusiastic, I have every confidence in Mark Carney to do the wrong thing(and in your case the right thing) and enact policies that get prices moving upwards again, as Shaun points out above wage rises are now beginning to accelerate, this is one of the major obstacles to further price rises as the banks are sticking to the multiples of earnings when lending to FTB’ers. I expect wages to start increasing in the coming years in order to stimulate house price growth since Carney never took the opportunity of the last few years to raise rates like the Fed, he cannot cut them unless he thinks he can go negative, and so wage increases will take the slack until then.

      Don’t forget, in Ireland legislation was passed to prevent banks from lending high multiples of salary to prevent another bubble a few years back following the bursting of the bubble, the result? the builders went on strike and lobbied the government to get the central bank to remove the caps on lending, hey presto prices took off like a rocket and are now up around 70% from their lows, I wouldn’t rule out something like that happening here too. First time buyers and housebuilders will I believe, be given direct subsidies/cash payments in years to come in order to prevent prices from falling.

      I’m sure you have considered it already, but if you don’t have to sell, have you considered renting it out until Carney and Hammond come to the rescue?

  2. Check out the mcmansion price collapse in former hedge fund rich areas in Connecticut (US). Changes in allowable US property tax writeoffs have sledgehammered the market in some states, but not changed the rent vs buy price equation in most. Only lightly regulated, high building lot availability Texas- (with less skewed wages)-seems to function like what we considered in the past a “normal” market. This seems to support the thesis in Britain of oligopolistic building lot control, Yes Minister local council machinations, and the usual profit seeking instincts of builders. Could we all live peacefully in abandoned shopping malls with their massive parking lot developable land??? An entire rethink and re-engineering of society is necessary!! Housing insecurity in the private sector is too big an issue to deny, even for mental health reasons alone!! It is not good enough to gloat on one’s own fortunate position in the game-it’s well- unbritish.

    • Looks like the people I work with haven’t read your rule book about gloating I’m afraid, and take every opportunity to turn conversations around to property/houses prices/how much they have made/how much they are going to make/when they are going to retire on the vast profits and BTL incomes projected into the future/how you can never lose on property/how they don’t care about first time buyers not being able to afford to buy – but then suddenly change the subject when I point out their kids will be those first time buyers in years to come.

      Another factor in the US housing market is local taxes which to anyone here used to paying around £1-3,000 p.a in council tax depending on the size of their pile is just unimaginable. In many areas the housing tax is what over here would be considered a good wage $10,20,30,000 p.a. Many states are close to insolvent and a recent article on Zero Hedge pointed out around six of the worst states with massive unfunded pension black holes in their accounts, with Illinois being the worst, the only option for them is to keep raising taxes on property and kicking the can down the road – or just wait for the government to bail them out with money freshly created via QE courtesy of the Fed?

  3. Speaking of printing money-how did US end up printing 1.2 + trillion dollars worth of $100 bills. Looks a little Zimbawaean to me?!? Was it those 747’s full of dollars they flew in once a month to Iraq to pay for oil they were helping to market. Some of it was just heisted when the plane landed in Iraq, and regretably- nobody was keeping accounts?!? Most of these bills seem to be circulating in the Middle East. Many questions and allusive answers?!?

    • It’s called the “exorbitant privilege” of having the worlds reserve currency, many countries have had had enough of the abuses and are taking steps to extricate themselves from it, ref Iraq wars, replacement of Gaadafi, China and Russia selling vast amounts of US treasuries and buying thousands of tons of gold etc etc, and so on, the irresistible force meets the immovable object – so who wins?

  4. You wrote: “Moving to consumer inflation then not a lot happened with the only move of note being RPI inflation nudging down to 2.4%.” RPI inflation only escaped from the general tedium because, following the change in the formula effect from -0.7 to -0.6 in January (i.e. the formula effect defining the difference between RPI and RPIJ inflation) it again dropped to -0.5 in March. This means that RPIJ inflation showed no change: it was 1.9% in March as in February. The RPI ex mortgage interest payments and council tax adjusted for the formula effect, arguably the best monthly inflation indicator currently available to the Bank of England, also showed no change, being at 1.8% in both February and March. From November forward this series has shown the same or a lower inflation rate than the CPI, although as recently as December 2017 it had an inflation rate that was 0.5 percentage points higher. The turnaround would probably be even greater if stamp duty were part of the RPI, as it should be. Unfortunately the 2019Q1 update for the ONS experimental index for stamp duty won’t be published until June 19, and it is a quarterly, not a monthly measure.
    I should add that the formula effect in March was where it was in November 2009 before the change in the clothing sample, without, as far as I know, a single woman’s strappy top being removed. I have no idea why this has happened.

    • Hi Andrew and thanks for the numbers

      With the fall in house price growth to near zero I suppose it is no great surprise that CPI and RPIJ give the same annual answer. For once on a monthly basis there is little to say on the debate between using house prices, rents and neither for owner-occupied housing. If you wait long enough…

      As to the formula effect the ONS report it thus.

      “The difference between the CPIH and RPI unrounded annual rates in March 2019 was -0.63 percentage points, narrowing from -0.67 percentage points in February 2019. ”

      But whatever the exact details of the change it has pretty much halved with as you say no real logic available as to why. The Office for National Statistics should be looking at this but I fear that they are not.

      • Thank you for your reply, Shaun. To complete your sentence, if you wait long enough and there is a substantial house price correction, the RPIJ inflation rate will sink appreciably below the CPI inflation rate. You would have a much better idea than me if this is likely, but it is at least possible. The formula effect difference between CPIH and RPI (series code CPTJ) is just one component of the unrounded difference between CPIH and RPI inflation rates (series code CPTE), albeit, usually the most important one. In Table 5a of the detailed reference tables the ONS now provides a breakdown of all the factors giving different inflation rates. Usually, the impact of all RPI housing components is the next most important (-0.19 for March) and sometimes it is more important than the formula effect. There was no decline in the formula effect between the CPIH and the RPI from February to March: it was -0.65 in both months. It is too bad this formula effect is reported to two decimal places, but the formula effect between the RPIJ and RPI is only reported to one. It is like the ONS wants to give people the means to keep on calculating the RPIJ, but deny them the means to do so precisely.

  5. I get this feeling we’re living in a kabuki shadow play of economic statistics and monetization of assets?!? (property prices -Japan-US-China-now Uber-lyft) Maybe those who must be served are correct in maintaining the sanctity of £ and decoupling from the EU- they’re just not telling us the real reason why?!? £ London financial market to become a Swiss franc type financial center?!? Hmm… Back to some BBC sandbagger reruns and chamomile tea!

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