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UK inflation hits 2.5% in June, ONS has revealed

UK inflation jumped again in June, outpacing economists’ expectations to accelerate away from the Bank of England’s target, the Office of National Statistics (ONS) revealed this morning.

The Consumer Price Index (CPI) rose to 2.5 per cent last month, its highest level since August 2018, up from 2.1 per cent in May. Analysts had forecast a rise of 2.2 per cent.

On a monthly basis, the CPI rose by 0.5 per cent in June 2021, compared with a rise of 0.1 per cent in June 2020.

Once again, the ONS said that the largest single factor pushing inflation upward was transport costs such as fuel, as well as higher prices for clothes, food and footwear.

The figures come a day after it was revealed that US inflation had rocketed to 5.4 per cent.

The Labour Party said that the rise was because firms were struggling to access critical supplies and were also handling a shortage of staff.

Shadow Chief Secretary to the Treasury Bridget Phillipson said: “The Government must do all it can do to keep materials and other supplies moving to prevent shortages, including cutting the unnecessary red tape following the EU-UK agreement, and providing much better training so that we have access to the skills we need here in the UK.

“Longer-term, Labour’s plan would mean we buy, make and sell more in the UK, protecting our access to critical supplies through better use of procurement and efforts to bring more production here.”

Last week outgoing Bank of England chief economist Andy Haldane said that inflation was on track to hit 4.0 per cent – double the Old Lady’s target.

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Commenting on this morning’s rise, KPMG’s chief economist Yael Selfin said inflation would likely peak at 3.0 per cent this year.

“The prospects of cooling inflationary pressures next year, as firms adjust to new levels of demand, should provide the Bank of England with room to keep interest rates unchanged for a while longer”, she said.

Jason Hollands, managing director of Bestinvest: “That prices are continuing to rise as economies bounces back from last year’s brutal contraction is little surprise, especially when there are supply bottlenecks that have built up during the lockdowns.

“Where the jury remains out though is whether the surge is a temporary effect or could lead to a more persistent problem if economies are allowed to overheat fuelled by unprecedented levels of both monetary and fiscal stimulus.”

Joseph Little, global chief strategist at HSBC Asset Management said that though inflation would likely continue to increase this year, it would be a temporary bump.

“We expect inflation pressures to continue building over the course of the year driven by base effects and the service sector’s reopening, higher energy prices and general supply-demand imbalances.

“The bulk of these transitory factors should unwind over the course of 2022, pushing inflation back towards the Bank of England’s 2 per cent target.”

By Edward Thicknesse

Source: City AM

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UK economy records modest May growth despite reopenings

The latest UK growth data covering May was a tad disappointing, with economic activity increasing by 0.8% on the month, a little lower than the 1.3/1.4% figure we’d been looking for. The good, albeit unsurprising, news is that consumer services activity rebounded strongly again owing to the ongoing reopening, and the likes of hospitality and recreation indices are essentially back to where they were last summer with comparable levels of restrictions. Otherwise the picture was slightly lacklustre, with the likes of retail, construction and manufacturing all recording month-on-month falls. In the case of the latter, you’d probably put this down to some of the supply chain issues being encountered globally.

Nevertheless, we still expect the UK to record approximately 5% growth through the second quarter. But the outlook for the current third quarter is becoming trickier to predict. Covid-19 cases are rising, albeit the growth rate may finally be showing some tentatively signs of slowing. And while the link with hospitalisations has weakened with the vaccines, there is growing concern about the number of people needing to self-isolate.

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Around 600,000 people were pinged by the NHS app or told to isolate by contact tracers in the week to 30th June, and that’s likely to be in the millions within days, if it isn’t already. This risks amplifying the worker shortages that we’re seeing in the consumer services sectors right now.

There’s also a growing risk that consumers begin to ‘act with their feet’ and reduce socialisation again while cases are high. And this may be one contributing factor to the recent levelling off in UK high frequency data. Mobility and spending data have come off recent highs.

We’d still expect positive third quarter growth of around 1.5%, especially given we’re not currently looking at new restrictions – and indeed the government is planning a further relaxation on 19 July. And we’d still say the outlook beyond the summer looks reasonably good, assuming no significantly vaccine-evasive variants emerge in the near-term.

We expect the size of the economy to be more-or-less back to pre-virus levels by the end of the year.

Source: Think Ing

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UK economy recovering quickly, long-term damage unclear-OBR

Britain’s economic recovery from its coronavirus lockdowns has been stronger than expected but it is too early to judge how much long-term damage has been done by the pandemic, a member of the country’s fiscal watchdog said.

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Charlie Bean, a committee member at the Office for Budget Responsibility, said it remained to be seen how many migrant workers had left Britain, how many currently furloughed workers would return to their jobs and how many companies will go bankrupt when government support is removed.

Writing by William Schomberg; editing by Michael Holden

Source: Reuters

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Second charge mortgage new business volumes up 293% in May

Second charge new business volumes rose by 293% in May 2021, according to the Finance & Leasing Association (FLA).

The number of new agreements in May was 1,910, and the value of new business was £84m.

In the three months to May 2021, the number of new agreements rose by 82% to 5,848, and the value of new business increased by 74% to £253m.

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However, year-on-on-year, the number of new agreements fell by 27% to 18,044, and the value of new business dropped by 33% to £784m.

Fiona Hoyle, director of consumer and mortgage finance and inclusion at the FLA, said: “The second charge mortgage market reported a second consecutive month of growth in May, and new business volumes increased by 12% in the first five months of 2021.

“The improvement in consumer confidence means the market expects to see the recovery in new business continue during the second half of 2021.”

By Jake Carter

Source: Mortgage Introducer

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BoE’s Haldane warns inflation headed towards 4 per cent

Andrew Haldane warned in his last speech as the Bank of England’s chief economist that policymakers risked losing control of inflation.

At an event hosted by the Institute for Government, Haldane said that UK consumer price inflation was headed towards 4% by the end of 2021 and that everyone would lose should inflation expectations became unhinged as a result.

Bank would be forced to play catch-up, hiking interest rates “materially” higher “and/or faster” in order to reanchor people’s expectations.

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“If this risk were to be realized, everyone would lose — central banks with missed mandates needing to execute an economic hand-brake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs,” he said in prepared remarks for the speech.

For now, there was no evidence that expectations had become unhinged, he added, but said that the recovery was changing the economy rapidly which could mean that rate-setters would have to shift their stance quickly.

“We’re moving from a regime of rather localized shortages and price pressure to a world of slightly more generalized shortages and generalized price pressures – from pockets of excess demand to aggregate excess demand,” he added.

Quick action was needed because “getting the cat back in the bag is jolly hard work.”

By Alexander Bueso

Source: ShareCast

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Homeowner arrears ‘low’ as renters absorb pandemic shock

The share of mortgage borrowers falling behind on debt repayments has remained “relatively low” during the pandemic, but the situation is worse for renters, according to the Bank of England ‘s latest research.

Whilst the proportion of mortgage balances in arrears has continued to resist a sharp rise since the start of the pandemic, the central bank’s quarterly update on household debt highlighted a worse outlook for renters.

“The Covid crisis has had a larger impact on renters’ finances than on homeowners’ finances,” it said.

“Renters were more likely to have lost their jobs or been furloughed, relative to households with mortgages or those who own their home outright.

“Survey evidence also suggests that more renters have seen a fall in income, a pattern which persisted over the crisis.”

Such observations have prompted the central bank to warn that “pressure on renters’ finances may result in defaults and losses for lenders”.

It added: “A fall in rental payments may lead buy-to-let borrowers to sell properties quickly, amplifying house price falls in a downturn.”

The National Residential Landlords Association published research earlier this year which suggested 840,000 private renters in England and Wales could have built rent arrears since March 2020.

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Surveying 2,077 private tenants, the membership body found 7 per cent of tenants had built up arrears as a direct result of Covid. Some 18 per cent of those in arrears had rent debts of more than £1,000.

More generally, the research also showed 11 per cent of private renters – between November and December 2020 when this survey was conducted – were unemployed.

Due to the government’s “no ‘one-size fits all’ approach” to rent payments during the pandemic, it concluded that “rent levels agreed in the tenancy agreement remain legally due and tenants should discuss with their landlord if they are in difficulty”.

The Bank of England said in its latest report if “renters cut consumption to keep up with rental payments this could amplify a downturn”.

It continued: “Renters are less likely to have savings compared to mortgage borrowers and spend a significant portion of their income on housing costs.”

This dip in income across the UK’s renting demographic has had a parallel impact on landlords’ income, according to the NRLA.

Out of 1,391 landlords it spoke to at the tailend of last year, 60 per cent said they had lost rental income as a result of the pandemic. And 39 per cent of this majority said those losses were continuing to increase.

With renters and landlords having absorbed the brunt of the pandemic-induced market shock, mortgage borrowers have, in contrast, benefitted from payment deferral schemes.

Since March 2020, the schemes have allowed borrowers to temporarily freeze mortgage and unsecured loan repayments, providing a cushion against any fall in income.

“Though payment deferrals were available to borrowers with either mortgage debt or unsecured debt, they appear to have had more of an impact in supporting those with mortgages,” the Bank of England said.

It cited UK Finance figures, which suggest around one in six UK mortgages were on payment deferrals around their peak in June 2020.

“The widespread use of mortgage deferrals in particular, has helped borrowers to manage temporary changes in their income through the crisis,” the bank concluded.

By Ruby Hinchliffe

Source: FT Adviser

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UK banks’ profits slashed by more than half

Big UK banks’ profits have slid by more than half over the last year, according to a ranking of the world’s largest lenders published today.

UK lenders included in The Banker’s top 1,000 World Banks 2021 experienced a 53 per cent drop in profits.

Losses were attributed to the severe damage the pandemic has inflicted on the UK economy and Brexit uncertainty.

The ranking is based on Tier 1 capital, a key measure of banking strength.

Joy Macknight, editor of The Banker, said: “The UK banking industry has faced significant headwinds over the course of the past year, with the impacts of the Covid-19 pandemic and Brexit uncertainty weighing profitability down.”

HSBC sole European bank in top 10

HSBC is the only European bank to rank in the global top 10 list for the tenth successive year.

The top five ranking UK banks all saw pre-tax profits drop sharply over the last year.

HSBC lost 34.2 per cent, while Barclays’s pre-tax profits slid 28.72 per cent.

Lloyds Banking Group absorbed the harshest hit to pre-tax profits of the top five UK banks, down 71.72 per cent.

Standard Charter lost 56.56 per cent and NatWest Group shifted from profit to loss.

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HSBC was the only European lender to rank in the top 10

Global banking powerhouses shake off pandemic pressures
The rankings show the world’s largest banks have remained resilient in the face of the pandemic-induced economic decline.

The world’s largest lenders added 12.7 per cent to their collective Tier 1 capital, reaching $9.9trn, a record high.

Total assets rose 16 per cent, to $148.6trn, while deposits grew 17.1 per cent, to $93.9trn.

Macknight added: “Although profits have shrunk across the globe and many banks’ balance sheets are loaded with allowances for expected loan losses, the world’s banking industry has held up remarkably well and is better capitalised than ever before.”

The banking sector has also performed better during the pandemic compared to the financial crisis.

The top 1000 banks’ combined profits fell 19.2 per cent year-on-year, significantly lower than the 85.3 drop per cent in 2009.

European banks suffer from low rates

Poor economic growth and a record low interest rate environment put downward pressure on Western European banks’ profitability.

Of the largest European economies, banks’ aggregate pre-tax profits contracted 43.71 per cent in Germany, 75.72 per cent in Italy and 47.67 per cent in the Netherlands, while France fell 11.61 per cent.

Spain notched negative pre-tax profits, driven by two of its largest banks, Banco Santander and Bankia, moving from profit to loss.

China now holds almost double the volume of Tier 1 Capital ($2.96trn) as the US ($1.58trn), despite having fewer banks than the US in the rankings.

Profits grew 5.2 per cent in China, compared to a 31.5 per cent and 41.8 per cent drop in the US and Western Europe respectively.

By Jack Barnett

Source: City AM

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UK economy tipped to bounce back strongly after the pandemic

Economic growth is on course to return to pre-Covid levels by the end of the year, a leading business group is predicting.

But the CBI warned of a “two-speed recovery”, with sectors having different levels of recovery.

Its research among almost 600 firms suggested that in the three months to June, private sector activity grew at the fastest pace for six years.

Manufacturing and distribution activity grew at record rates while growth in business and professional services remained strong, but consumer services activity continued to fall, said the CBI.

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Alpesh Paleja, CBI lead economist, said: “With much of the economy having now reopened, we’re seeing a boost in activity across the economy.

“With robust expectations for the months ahead, and real positivity in terms of vaccine uptake, CBI forecasts show that UK GDP is on course to return to pre-Covid levels by the end of the year.

“Where we need to remain vigilant is the emergence of a two-speed recovery.”

The CBI added that sectors such as manufacturing, distribution and business and professional services looked well on the road to recovery, while firms in industries such as travel needed greater support to prevent the loss of skilled jobs.

By Daniel Smith

Source: Essex Live

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UK economic recovery continues but inflationary pressures build – PMI

The UK economic recovery continued in June, research published on Wednesday showed, prompting a record hike in employment, but inflationary pressures gathered pace.

The IHS Markit flash UK composite output index was 61.7 in June. That was down on May’s final reading of 62.9, and was marginally below consensus for 61.5. But it remains among the fastest rates of expansion seen since the series began in January 1998.

The services business activity index was 61.7, compared to 62.9 in May, while the manufacturing PMI printed at 64.2 against May’s 65.6. The manufacturing output index was 62.0, one point lower than May’s 63.0 reading.

IHS Markit said companies had responded to rising workloads by hiring extra staff “at an unprecedent rate”. The composite employment index hit a record high of 58.5 in June, up on May’s 57.4.

But it also noted input costs and output prices had reached fresh highs, as supply-chain disruptions weighed heavily.

Chris Williamson, chief business economist at IHS Markit, said: “Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound sharply from the first quarter’s decline.

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“There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performance, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.”

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “As materials were increasingly hard to come by, they once again became more expensive. Record cost inflation last seen in 2008 filtered through to increasing output costs, as manufacturers were unable to absorb these rapid rises any longer.

“In service businesses, consumers were hit with considerably-higher prices for food and hospitality, increasing the threat of soaring inflation in the UK economy this summer.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The PMIs remain one of the most upbeat indicators of the pace of the economic recovery, insofar as they signal only a modest slowdown in month-to-month GDP group in June. Other surveys, however, point to a sharper deceleration.

“The further rise in the composite output price index, to 60.6 – the highest level in its 23-year history – confirms that price pressures are building quickly. Nonetheless, with labour market slack likely to increase in the fourth quarter, when the furlough schemes is wound down, and Covid-related costs to diminish as the country exits the pandemic, we continue to think that the MPC will look through the upcoming bout of above-target CPI inflation.”

Joshua Mahony, senior market analyst at IG, said: “While both manufacturing and services PMI readings weakened in the UK, there are many aspects to be encouraged by, with employment continuing to remain buoyant, and the 12-month outlook remaining optimistic.”

IHS Market surveyed its panel of 650 manufacturers and 650 service providers between 11 and 21 June. Final data will be published by 5 July.

By Abigail Townsend

Source: ShareCast

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Call For Government Action To Avoid Arrears Crisis

Landlords in England are being forced into a corner because tenants are not being given the financial support they need, said the National Residential Landlords’ Association this week.

Many landlords now have to make a choice between accepting no income or resorting to repossessing their property, it claimed.

A high proportion of private landlords have allowed rent free periods during the coronavirus crisis, or allowed rents to be deferred. Six in ten of these have absorbed the lost income by using personal savings. But ‘the goodwill of landlords in the face of mounting rent debts cannot continue without support from the Treasury’, warned NRLA.

Its latest survey estimated that over 800,000 people living in the private rented sector in England and Wales now have rent arrears that have been built up during since the coronavirus lockdown. Of this group, eight in ten were not in arrears prior to the start of the pandemic.

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‘To help resolve this crisis, the Government should introduce new measures to bring housing benefit support back into line with market rents’, said NRLA. ‘Government data shows that across the UK, in February 2021, 55 per cent of private rented households in receipt of Universal Credit which included housing cost support, had a gap between that and the rents they paid. The average shortfall was £100 a month. Despite this, the Chancellor froze local housing allowance rates in cash terms from April this year, a decision the Institute for Fiscal Studies branded “arbitrary and unfair” ‘.

The NRLA is calling for the Local Housing Allowance to return, at the very least, to a level that will cover the bottom 30 per cent of market rents in any given area, but preferably for it to be increased to a level that covers average rents. It also wants a Government guaranteed, interest free, hardship loan scheme to help tenants pay off rent arrears built since the lockdown began.

‘The Chancellor has clearly decided on a strategy of making landlords the scapegoats for a crisis of his own making’, claimed NRLA chief executive Ben Beadle. ‘For less than the cost of the Eat Out to Help Out Scheme he could provide landlords and tenants with the financial support they need to keep tenants in their homes and prevent damage to credit scores.

‘Landlords want to sustain tenancies wherever possible, but without the support so many tenants desperately need, the Chancellor will need to accept the tragic costs of his failure to act’.

Source: Landlord Knowledge

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