Average two-year UK mortgage rate drops below 6% for first time since June – business live | Business

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Average two-year mortgage rate dips below 6% for first time since June

The average two-year fixed-rate UK homeowner mortgage has dropped below 6% for the first time in nearly six months.

In a boost to borrowers, data provider Moneyfacts has reported that the average 2-year fixed residential mortgage rate today is 5.99%, down from an average rate of 6.01% on Thursday.

Longer-term mortgages also got cheaper, with the average 5-year fixed residential mortgage rate today is 5.60%, down from 5.61% yesterday.

James Hyde, spokesperson at moneyfactscompare.co.uk, said:

“The average two-year fixed rate has dipped below 6%, for the first time since mid-June this year.

“Having peaked at 6.86% in late July, rates have been gently falling since early August due a combination of factors including falling inflation, base rate pauses, and reductions in swap rates.

“In recent weeks, a number of lenders have again begun to offer sub-5% two-year fixed deals; with lowest rates available UK-wide sitting around 4.75% at present.

“It remains to be seen if the recent rate reductions will continue, as any further rises in inflation, base rate, or swap rates may lead to a reversal.”

The average two year fixed rate mortgage has dropped below 6% for the first time since June.
Avg 2yr rate: 5.99%.
Avg 5yr rate: 5.6%.
Data from Moneyfacts

— Ed Conway (@EdConwaySky) December 8, 2023

This drop in mortgage rates follows falls in the yields on UK government bonds. Those yields, which are used to price mortgage rates, have been falling as financial traders have anticipated that the Bank of England will cut interest rates several times in 2024.

The news should be welcomed by housebuilders such as Berkeley, which reported this morning that higher interest rates were hitting demand (see 8.26am).

Yesterday, Halifax reported that house prices rose last month as the slight easing in mortgage rates helped coax more buyers into the market.

Back in July, two-year fixed mortgage rates hit their highest levels since the financial crisis 15 years ago, putting more pressure on households, but rates began to drop as UK inflation fell.

Key events

UK public short-term inflation expectations drop

The UK public’s expectations for inflation in the coming 12 months has dropped to their lowest level for two years, new data shows, although longer-term expectations have risen.

A Bank of England survey showed on Friday that median expectations of the rate of inflation over the coming year were 3.3%, down from 3.6% in August.

But when asked about expectations of inflation in the longer term (such as in five years’ time), people expect inflation to average 3.2%, up from 2.9% in August.

Notably, people also believe inflation is higher than the official data. Asked to give the current rate of inflation, respondents gave a median answer of 7.5%, down from 8.6% in August 2023. According to the Office for National Statistics, inflation was 4.6% in October.

Dissatisfaction with the Bank of England has also fallen.

The central bank says:

Respondents were asked to assess the way the Bank of England is ‘doing its job to set interest rates to control inflation’. The net satisfaction balance, the proportion satisfied minus the proportion dissatisfied, was -14%, up from -21% in August 2023.

Bank of England/Ipsos Inflation Attitudes Survey – November 2023

– Median expectations of the rate of inflation over the coming year were 3.3% vs. 3.6% in August

Of greater concern…

– 3% of respondents thought that interest rates had fallen over the past 12 months!!!…

— Adam Linton (@Adamlinton1) December 8, 2023

The financial markets may react poorly if today’s US jobs report is either stronger, or weaker, than expected, warns Julien Lafargue, chief market strategist at Barclays Private Bank.

Lafargue explains:

“Recent data suggests that the US labour market is softening. As such, expectations going into today’s nonfarm payrolls release are skewed to the downside. A significant positive surprise would challenge the market’s consensus that interest rate cuts will materialise around the beginning of Q2 2024.”

“On the other hand, a significant disappointment could force the market to reassess its soft landing scenario. A number broadly in line with expectations would, in our view, probably be the most supportive outcome for stocks.”

Market expectations are for a 180,000 increase in jobs last month, stronger than October’s 150,000.

Another shareholder in e-commerce company THG is calling for the firm to be broken up.

Ophorst van Marwijk Kooy Vermogensbeheer (OVMK), which owns 2% of THG’s shares, says it is “disappointed” that the company is (it says) undervalued on the London stock exchange.

OVMK says:

We admire the way THG Plc has evolved since the company was founded. All three underlying divisions are high-quality players in their individual niche markets and excellently positioned for further growth.

We are, however, disappointed by the significant structural undervaluation of the company’s shares on the stock exchange, despite the improvements made to both the structure of the three separate entities and corporate governance.

We therefore agree that this is the right time to unlock value by examining the strategic options for each of the company’s three business units to maximize value for all shareholders.

THG’s shares are trading at 80p (+3.5%) today, and are up 85% this year. But they are languishing a long way below the 500p at which the company floated in September 2020, before briefly peaking over 800p in early 2021.

THG operates a beauty business, a nutrition business, and an e-commerce services platform called Ingenuity.

Earlier this week, activist investor Kelso Group urged THG to announce plans to break up its business and release value.

Spotify CEO departing after mass layoffs

A screen displaying the logo and trading information for Spotify on the New York Stock Exchange, with trader Peter Tuchman in the foreground
A screen displaying the logo and trading information for Spotify on the New York Stock Exchange, with trader Peter Tuchman in the foreground Photograph: Brendan McDermid/Reuters

Spotify is parting company with its chief financial officer, Paul Vogel, as it pushes to cut costs and lift profitability.

The music streaming company announed last night that Vogel will leave at the end of March, with an external search underway for a replacement.

The news comes just a few days after Vogel cashed in over $9m (£7.2m) of shares, after Spotify’s share price jumped as investors welcomed plans to cut its headcount by a sixth, as it announced on Monday.

Spotify’s founder, Daniel Ek, revealed that Vogel’s departure comes after “a lot” of discussion about how to grow the business while hitting spending targets, saying:

“Spotify has embarked on an evolution over the last two years to bring our spending more in line with market expectations while also funding the significant growth opportunities we continue to identify.

I’ve talked a lot with Paul about the need to balance these two objectives carefully. Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences. As a result, we’ve decided to part ways, but I am very appreciative of the steady hand Paul has provided in supporting the expansion of our business through a global pandemic and unprecedented economic uncertainty,”

Ek adds that Spotify hopes to hire “a strong financial leader as our next CFO”.

European stock markets have opened a little higher, as investors await the US non-farm payroll at 1.30pm UK time.

In London, the FTSE 100 is up 0.2% or 14 points to 7,527, led by grocery technology group Ocado (+3.6) and supermarket chain Sainsbury (3.1%).

Germany’s DAX is 0.2% higher, while France’s CAC has gained 0.6%.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says:

“The FTSE 100 has recouped some losses as the market holds its breath ahead of the US non-farm payroll report.

The data will help set the tone for next week’s Federal Reserve meeting, with growing hope that the US is ready to keep the pause button pressed on interest rate increases. A slowing jobs market would help cement this enthusiasm.”

Oil on track for 7th weekly fall in a row

In the energy market, the oil price is on track to post its seventh weekly fall in a row, despite a pick-up today.

Yesterday, Brent crude fell below $74 per barrel to the lowest since the end of June, pulled down by concerns that the global economy is weakening.

But it’s gained around 2% this morning, back to $75.50 per barrel, after Saudi Arabia and Russia urged other Opec+ members to join their agreement to cut output.

At the end of November, several Opec+ countries announced additional voluntary cuts to production, but that did not prevent oil continuing to drop in December.

Housebuilder flags subdued demand as reservations fall

UK housebuilder Berkeley Group has flagged that conditions in the UK property market remain subdued.

Reservations for private sales at Berkeley in the first half its financial year are running around one third lower than the levels secured throughout the 2022/23 financial year, it told shareholders this morning.

Berkeley blames the “sharp increase in interest rates from September last year”, following the mini-budget, and the ongoing elevated political and macro volatility.

It says the market should pick up, once it is clear that interest rates are heading lower:

During the last six months, macro volatility has increased, domestically and abroad, with the prospect of UK interest rates remaining higher for longer and weak economic growth projections.

Against this backdrop, the sales market lacks urgency and Berkeley’s net reservations for the six months to 31 October 2023 have been around a third lower than the average rate throughout FY23. We anticipate the sales market will remain subdued before inflecting in its normal cyclical manner once there is greater confidence in a downward trajectory for interest rates and economic stability returns.

Berkeley also reported a 4.6% rise in pretax profits for the six months to 31 October, to £298m.

But it build fewer houses – delivering 1,785 homes delivered, plus 204 in joint ventures, down from 2022’s 2,080 homes, plus 251 JVs.

There is a great deal of variability in hiring activity across UK regions and sectors, reports Neil Carberry, REC chief executive.

Carberry explains:

The Midlands and the North both saw strong performances for temporary and permanent roles, in sharp contrast with London and the South, with permanent hiring in London especially slow.

The ongoing stronger performance of the private sector on new vacancies is also a notable positive signal.

Carberry also warns that if there is a pick-up in hiring, it will add to the strains on the jobs market due to embedded labour shortages, adding:

…this week’s pro-election rather than pro-economy decision on immigration will exacerbate that.

Any return to growth could drive domestically-generated inflation unless we adopt a proper plan for workforce capacity, embracing better welfare-to-work support, finally reforming the Apprenticeship Levy, funding Further Education properly and the kind of support for school leavers suggested by today’s Broken Ladders report from EDSK and REED on the school-to-work transition.”

Introduction: UK starting salaries rise at slowest pace in nearly 3 years

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK salary growth is cooling as cautious employers cut back on their hiring plans.

Starting salaries paid to new staff rose at the slowest pace in 32 months in November, the latest poll of recruitment firms from KPMG and REC has shown.

Although there was still competition for candidates with sought after skills, recruitment firms reported that clients were under greater budgetary pressures.

This led to the slowest rise in permanent starters’ pay since March 2021, with starting salary inflation easing in all four monitored English regions, except the Midlands.

REC and KPMG also report that pay for temporary workers rose at the lowest rate in 33 months. Temporary wages actually fell in the North of England, but rose at the fastest pace in London.

A chart showing starting pay and temporary wages
Photograph: REC/KPMG

That implies the UK labour market is weakening, a blow to workers, but it should cheer the Bank of England as it assesses whether interest rates are restrictive enough to bring down inflation to its 2% target.

Claire Warnes, a partner at KPMG, explains:

“Businesses want to plan for the year ahead, but the prospect of faltering UK economic growth means the certainty they need isn’t there. This is now impacting starting salaries.

Even temp staff billings – which have given much needed flexibility to employers in key sectors such as health & care and IT – are facing some contraction. And with the Bank of England looking like it will be keeping interest rates high for now, businesses will need to stay resilient to manage this period of flux.”

The report also found that hiring slowed again in November, while the number of vacancies dropped for only the second time since February 2021.

This led to the largest rise in available candidates for almost three years. Here’s the full story:

Also coming up today

The US jobs market will also be focus as investors await the final non-farm payroll report of the year. November’s NFP is expected to show a pick-up in hiring, after a lull earlier in the autumn.

US payrolls are expected to have risen by 180,000 jobs, ahead of the 150,000 increase in October.

But wage growth could slow, with average earnings growth tipped to slow to 4% from 4.1%.

The NFP will be closely watched in the markets, as a gauge as to whether America’s central bank has lifted interest rates high enough to cool US inflation and pull off a ‘soft landing’.

The agenda

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