No change, no change
Despite plenty of speculation to the contrary, at its meeting ending on 9 May 2018, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain Bank Rate at 0.5%. The MPC highlighted that their preliminary estimate of GDP growth in the first quarter was 0.1%, 0.3 percentage points lower than expected in February, suggesting that adverse weather in late February and early March had an impact. Survey indicators suggest that growth was somewhat stronger in Q1 than implied by the preliminary estimate. According to the Bank, GDP is expected to grow by around 1¾% per year on average over the forecast period with business investment restrained by Brexit-related uncertainties. However growth is being supported, like exports, by strong global demand and accommodative financial conditions. Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period. CPI inflation fell to 2.5% in March, lower than expected at the time of their February Report and the MPC predict that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought. It is predicted that CPI inflation will hit the MPC target in two years. These projections are conditioned on a gently rising path for Bank Rate over the next three years. In what they call exceptional circumstances presented by Brexit, the MPC has been balancing any significant trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity. Whilst not changing the bank base rate this week, the Committee’s best collective judgement appears to be that, were the economy to develop broadly in line with the May Inflation Report projections, an increase in the bank base rate would be appropriate to return inflation sustainably to its target at a more conventional rate. For the majority of members therefore, an increase on the current 0.5% was not required at this meeting and it was re-affirmed that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.
HPI easing
According to the latest House Price Index from the Halifax, the lender has seen an annual house price growth ease from 2.7% in March to 2.2% in April. House prices in the three months to April were 0.1% lower than the previous three months. Both the quarterly and annual rates have fallen since reaching a recent peak last autumn, with these measures providing a more stable indication of the underlying trend than the monthly change. Halifax highlighted that housing demand has softened in the early months of 2018, with both mortgage approvals and completed home sales edging down. UK home sales dropped by 7.2% between February and March to 92,270 – the lowest level since May 2016 (88,680). In fact, according to HMRC’s seasonally adjusted figures, since the end of last year home sales have averaged 97,000 per month since December. Housing supply – as measured by the stock of homes for sale and new instructions – is also still very low. However, on a positive note the UK labour market is performing strongly with unemployment continuing to fall and wage growth finally picking up. These factors should help to ease pressure on household finances and as a result we expect annual price growth will remain in our forecast range 0-3% this year. The latest Halifax Housing Market Confidence Tracker shows that optimism in the housing market remains at a five year low, echoing the subdued house price performance and activity levels since the end of last year. This is, albeit, set against a positive outlook for the majority of consumers who believe house prices will increase over the next 12 months. Indeed, fewer people are now predicting a fall in house prices compared with six months ago. The survey also reveals that potential Bank of England Base Rate increases are not a major concern for mortgage holders, with less than a third concerned about the possibility of rising interest rates affecting their ability to meet their monthly repayments.
DIY Tenants
A new study published by Uncle, a serviced apartment start-up has found that renters are spending over a £1bn of their own funds on property repairs that the landlord has failed to carry out. According to the study, the average tenant per household pays £217 on repairs that should have been carried out by the landlord within the last year. The most common issues that have affected tenants include boilers (37%), baths, showers (29%) and toilets (26%). The survey also revealed that many renters do not completely trust their landlord, while nearly one in five (21%) of renters said their relationship with their landlord is so bad it has affected their physical or mental health. Separate figures from the English Housing Survey show that over a quarter (27%) of privately rented homes failed to meet the decent homes standard in 2016, while 8% of properties also had some type of damp problem. The Local Government Association (LGA), which represents 370 councils in England and Wales, argue that higher fines for serious cases such as for fire safety breaches or providing substandard housing would raise standards and provide consistency across the courts. Under powers introduced earlier this year, councils can enforce fines of up to £30,000 to private landlords for offences such as failing to license a property, or not complying with an improvement notice.
The price of loyalty
Insurers and brokers have this week announced a new plan to help tackle excessive premium differences between long standing and new customers. The ABI (Association of British Insurers) and BIBA (British Insurance Brokers’ Association) have launched a set of Guiding Principles and Action Points that will address some of the issues in the current market that can lead to excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers. The Guiding Principles and Action Points (GPAPs) apply to key personal lines insurance products such as home, motor and travel, but not pet or health insurance. Many pet and private health insurance products provide cover at renewal for medical conditions that arose since the inception of the policy. These would generally not be covered under a new policy, meaning comparisons are not valid. ABI and BIBA members will now take action so that customers’ tendency to shop around at renewal is not used to lead to excessive pricing differences that unfairly penalise long-standing customers. There will also be clear written, online or verbal communications to the new customer that the premium only applies for that year and subsequent renewal premiums may be higher.
