The British economy is displaying indications of starting to stabilize after the economic decline caused by rapidly increasing inflation and continually rising interest rates. There is optimism that the peak in borrowing expenses has been reached.
Data from Friday’s reports on the housing market and manufacturing indicate that there has been a stabilization in activity, with decreased mortgage expenses for households and increased optimism among industrial companies.
Economists noted that with inflation slowing down and the Bank of England taking a break from its extensive interest rate hikes, there are some indications that the strain on households and businesses may be starting to ease. However, overall economic activity is still below pre-crisis levels due to the high cost of living.
Based on the most recent report from S&P Global and the Chartered Institute of Procurement and Supply (CIPS), it appears that the UK manufacturing industry may be starting to improve, as the rate of decline in industrial production has significantly slowed.
Production in the manufacturing sector decreased for the ninth month in a row in November, however, the decline was not as steep as in previous months. This was unexpected by economists in the City, as the sector showed better performance than predicted.
The PMI, which is calculated based on surveys of company opinions about the present state of the economy, increased to 47.2 in November compared to 44.8 in October, marking its highest point since April. However, the PMI remained below the threshold of 50 which indicates either growth or contraction in the private sector.
According to Fhaheen Khan, a senior economist at trade organization Make UK, the numbers suggest that manufacturing may be starting to level out, even though the sector is still experiencing its longest period of decline in over 10 years.
The speaker mentioned that there are indications of cost pressures easing as input costs decrease. This allows manufacturers to have more time to prepare for the upcoming year.
“Nevertheless, once the backlog of previous tasks is completed, there is a possibility that a decrease in new orders may lead to a reduction in investments and job opportunities next year. This is especially concerning given the current political climate which is full of uncertainty.”
Separate figures from Nationwide, the UK’s biggest building society, revealed an increase in UK house prices for a third consecutive month in November as the market responded to hopes that mortgage rate costs had peaked.
In November, the cost of houses increased by 0.2% compared to the previous month. This follows a 0.9% increase in October and a 0.1% increase in September. According to economists surveyed by Reuters, it was predicted that house prices would decrease by 0.4% in November.
Nationwide announced that the Bank of England decided to halt its trend of increasing interest rates in September, following a string of 14 consecutive raises to 5.25%. This is expected to result in a decrease in mortgage expenses, leading to increased activity in the housing market.
Robert Gardner, the chief economist at Nationwide, stated that there has been a notable shift in market expectations for the future trajectory of the bank rate in recent months. This change, if it continues, could potentially bolster the housing market. According to Gardner, by the end of November, the general consensus was that the rates have reached their highest point and will gradually decrease to around 3.5% in the upcoming years.
Due to anticipation in the financial markets that the Bank will initiate interest rate reductions in the upcoming year, traditional lenders have lowered the interest rates on newly offered mortgage options. As a result, Barlcays is currently offering a five-year loan at a 4.39% rate and the option to secure a two-year loan for less than 5%.
According to Moneyfacts data, the average interest rates are still considerably higher, with a 6.04% rate for a two-year fixed deal and a 5.65% rate for a five-year fix. However, these rates have decreased from their highest points of 6.86% and 6.37% seen earlier this year.
According to Nicholas Mendes, a mortgage broker at John Charcol, he anticipates a decrease in rates next week and predicts more reductions in 2024. He also mentioned that based on market trends, there is a possibility for sub 4% deals in mid-2024 due to a projected decrease in bank rates in the coming years.
The initial five-year fixed rates will be the first to experience a rate below 4%, followed by the two- and three-year fixed rates surpassing the 4.5% benchmark.
Despite improvements in the economy, there are still significant financial challenges for households and businesses due to increased costs. The Bank of England has cautioned that only half of the effects of their rate hikes have been experienced so far, as many homeowners are approaching the end of their lower-priced fixed-term mortgages.
On Monday, the Confederation of British Industry reported a decline in retail sales compared to the previous year for the seventh consecutive month. Business leaders expressed concerns about a potential underwhelming holiday season. The Bank projects a 50-50 likelihood of a recession in the upcoming year and predicts a slow economy until 2024.