Signals point to the start of a real estate correction
Andrew Dalton of BTG Advisory considers the climate for the real estate sector amid the inflation-induced economic slowdown and with some economists saying that the UK is already in a recession which could endure into mid-2023. He says real estate investors and lenders have “pivoted to a more conservative posture,” saying that while vendors and buyers are typically cautious when asset prices are declining, lenders closely re-evaluate existing loan books. Mr Dalton cites Real Capital Analytics data showing that while Q3 transactions slowed to £11.5bn, 33% less than last year, activity is up 4% to £50bn in the year to date and yields have started to move out from record low levels. He adds that as properties transacted diminished month-by-month through Q3, this possibly signals that a real estate correction has already begun. Mr Dalton says that financing liquidity is expected to remain available across sectors and markets, supported by secular demand drivers. He also highlights that although development finance wanes during recessionary periods, there may still be selective opportunities in residential and affordable rental housing, where a long-term structural undersupply remains.
Barclays offers homeowners energy-efficiency rewards
Barclays is offering homeowners a cash reward of up to £2,000 to make energy-efficient improvements to their properties. The bank’s Greener Home Reward is designed help those who want to make energy saving or environmentally friendly changes to their home. Customers can choose to install any one of several home improvements, including an air-source heat pump, double or triple-glazed windows, solar panels, or home insulation, as long as the improvement is completed by a TrustMark-registered business or tradesperson. C.S. Venkatakrishnan, group CEO at Barclays, said: “There is a clear need to improve the energy efficiency of UK housing, but as our data indicates, cost remains a barrier to turning desire into action,” adding: “We hope this pilot will go some way towards encouraging consumers to make energy efficiency-related home improvements.” A survey of 2,000 homeowners by Barclays found that 90% hoped to make eco-improvements within five years, but three quarters said they were currently unaffordable.
Questions raised over HSBC boss’ US base
Concerns have been raised over HSBC chairman Mark Tucker’s decision to base himself in the US as he leads a shake-up of the bank that is based in the UK and makes much of its money in Asia. MP Bob Seely, who sits on the Foreign Affairs Committee, said: “I wonder how feasible it is long-term having your chief executive living in another time zone, and away from most of his colleagues and customers?” He added: “If he doesn’t want to stay in the UK, he’s not the only banker who can do the job of heading a UK bank.”
Banks to pay A$126m in compensation
Australia’s Commonwealth Bank, ANZ and Westpac will hand over A$126m in compensation to customers who were charged for consumer credit insurance that they could not benefit from. The insurance was frequently bundled in with personal loans or new credit cards but those buying it were often unaware that they could not benefit from it because of unemployment or medical conditions. Law firm Slater and Gordon has reached a class action settlement with the three banks that will see Commonwealth and its insurer Colonial Mutual Life Assurance Society pay out A$50m, while ANZ and its insurers will hand over A$47m and Westpac will pay A$29m.
Sumitomo Mitsui sees 8% increase in Q2 net profit
Sumitomo Mitsui Financial Group, Japan's second-largest bank, has reported an 8% increase in second-quarter net profit and raised its profit outlook. The bank posted a profit of 272.99bn yen in the July-September period, up from 252.8bn yen a year earlier. For the full year through March, Sumitomo Mitsui revised its profit forecast to 770bn yen from 730bn yen. This compares to a 753bn yen average estimate of 13 analysts compiled by Refinitiv.
Profit slips at Japan’s largest lender
Mitsubishi UFJ Financial Group, Japan's largest lender by assets, has reported a 70.5% dip in Q2 net profit. It attributed the fall to a one-off loss related to the sale of its US subsidiary. The bank, which owns about 22% of Morgan Stanley, posted a net profit of 117.4bn yen for the July-September period, against 398.4bn yen a year earlier.
Solvency II reform delayed
The Bank of England has announced that reform of EU insurance rules will not take place until at least 2025, with the Prudential Regulation Authority (PRA) saying this is necessary “to ensure firms have an appropriate lead time to plan these reporting changes in an orderly manner.” The Times’ Ben Martin says there have been tensions between the PRA and the insurance industry over how far Solvency II regulations should be loosened. Jacob Rees-Mogg, a former Brexit Opportunities Minister and Business Secretary, said: “The PRA is a consistent obstacle to reform and continues to drag its feet. It is holding back investment and reducing the UK’s competitiveness.”
FTX founder is accused of lying by Binance CEO
Sam Bankman-Fried, the founder of collapsed cryptocurrency exchange FTX, has been accused of lying to customers by Changpeng Zhao, the founder of Binance, the world’s largest cryptocurrency exchange. Mr Zhao blamed the collapse on Mr Bankman-Fried, saying: “In this case I think they were lying. FTX lied. I think Sam lied to his employees, his users, his shareholders, regulators all around the world.” FTX, which allowed consumers and businesses to buy-and-sell digital assets such as Bitcoin, collapsed last week with liabilities of $9bn. Considering the wider impact of the collapse, Mr Zhao said there was a risk of “some cascading contagion effects” that could hit smaller exchanges.
Regulators warn over scams
The Pensions Regulator, Financial Conduct Authority and Money and Pensions Service have joined forces to warn savers against scams, while also calling on trustees to remain vigilant. This comes amid concern that “recent headlines over squeezed household finances may leave savers more vulnerable to scammers,” with the regulators saying issues such as the recent gilt crisis may push savers “to incorrectly decide there is a risk to their retirement pots and make rushed decisions about their finances.” The watchdogs have reminded trustees to “follow best practice in protecting savers from scams”.
Pfizer and Moderna launch vaccine impact trials
Pfizer and Moderna have launched trials to determine whether there are any long-term negative health impacts associated with their Covid vaccines. The studies will involve monitoring the small number of Americans who suffered rare side effects after receiving the shots over the past two years.
LEISURE & HOSPITALITY
Pubs and restaurants closing earlier to save on energy costs
According to research from the ONS, a fifth of Britain's pubs, restaurants and cafés have cut their hours over the past three months to reduce their energy costs. The figures showed that 4% of hospitality businesses had reduced trading by one day a week and a further 6% had cut service by two or more days. The data also showed that 41% of food and drink outlets expect to put up prices this month. Emma McClarkin, CEO of The British Beer and Pub Association, said: "This Thursday, we desperately need the Chancellor to provide relief to the cost of doing business, but we also need clarity and certainty for our pubs and brewers that energy support will continue beyond the initial six months."
Asking prices dip 1.1%
The average asking price for a UK home fell by more than £4,000 month-on-month in November, according to Rightmove. The average price of a newly marketed home in November is £366,999, with this £4,159 lower than the average recorded in October. The decline follows a 0.9% increase between September and October. Year-on-year, property prices were up 7.2% in November, slowing from a rise of 7.8% the month before. Tim Bannister, Rightmove’s director of property science, said: “The exceptional price growth of the last two years is unsustainable against the economic headwinds and growing affordability constraints.” The report also shows that 8% of unsold properties on Rightmove were reduced in October, double the 4% recorded in the same month of 2021.
OBR: Borrowing to be £70bn higher than predicted by 2026
The Office for Budget Responsibility (OBR) has warned that Government borrowing could be £70bn higher than expected without action. The OBR has suggested that borrowing could hit £100bn in 2026/27, far exceeding the £31.6bn it forecast at the time of the Budget in March. Half of the extra cost will come from a rise in the cost of servicing Government debt, with the remainder due to a lower amount collected from taxes due to weaker economic growth, as well as the cost of welfare benefits and state pensions being driven up by inflation. The warning comes ahead of this week’s Autumn Statement, where Chancellor Jeremy Hunt is expected to set out around £35bn of savings and £25bn of tax increases in a bid to fill a black hole in Government finances.
UK to be first G7 nation in recession and last one out
Economists have warned that Britain risks being the first G7 nation to slip into recession and the last one out of it, predicting that it would be outpaced by the US, Germany, France, Canada, Japan and Italy. Experts from Pantheon Macroeconomics said the UK is “the laggard among G7 economies by a growing margin,” noting that while GDP fell by 0.2% quarter-on-quarter in the UK in Q3, it rose by 0.2% in France, 0.3% in Germany, 0.4% in Canada, 0.5% in Italy and 0.6% in the US. Pantheon said the economic prospects for “most other European countries are brighter,” noting that fiscal policy is not being tightened by most EU member states and that UK households also are more indebted than those across the EU. “Accordingly, we expect the UK to be first to enter a recession, and the last one to pull out,” the economists added.
Inflation has peaked but will fall slowly - Deutsche Bank
With Office for National Statistics data predicted to show that prices rose 10.9% over the last year, Deutsche Bank has forecast that UK inflation has peaked but will take a long time to fall. Sanjay Raja, an economist at the investment bank, said the while the 10.9% rate is above September’s 10.1% reading and marks a 40-year high, “inflation will likely have peaked in October.” However, he warned inflation would stay high, saying: “Emerging second-round effects and a tight labour market will likely keep price pressures sustained for a little longer heading into 2023, particularly with regards to services inflation.”
Paris replaces London as Europe’s most valuable stock market
Britain's stock market has lost its position as Europe's most-valued, according to data from Bloomberg. France has taken the top spot, with an increase in the combined value of its companies' shares meaning Paris has overtaken London for the first time since records began in 2003. Bloomberg calculates that the combined value of British shares is now around $2.821trn, while France's are worth around $2.823trn. Shares in the UK's medium sized companies have been hit as consumers pull back on spending and businesses struggle with higher costs. London's FTSE 250 share index - which is made up of medium sized companies - has fallen by almost 17% in the last 12 months. Amsterdam last year replaced London as the largest financial trading centre in Europe, with this based on the total value of traded shares rather than companies.