20th August 2008

 
The average UK house price in the UK fell by 2.3% in August according to the Rightmove House Price Index. This brought the annual decline to 4.8% - the most since the index started in 2002. The index had first shown a negative figure for this cycle in September 2007 but has had erratic returns since then with positive monthly growth of over 3% reported as recently as February. However the index is now consistently negative since May and the pace of the decline is increasing - the 3 month moving average is at -1.8% from -0.6% in July. The sluggish performance of the domestic economy and the curtailment of the availability of mortgage financing has hit the UK housing market hard and the sector will continue to suffer from weak activity for the foreseeable future with little light visible at the end of the tunnel from the current and forecasted data. The Rightmove house price index 3 month moving average since 2002 is illustrated in the graph below.
 
Sterling fell substantially last week but it was broadly unchanged yesterday against the dollar trading at the $1.86 range before falling to $1.85 this morning after Tim Besley of the MPC said that inflation would fall back to near the target rate by the end of next year. The dollar has appreciated dramatically against Sterling since the end of July where it was trading touching off $2 to the pound. Sterling also fell against the euro mid week but recovered somewhat by this morning and was relatively stable in the EUR1.26 range. UK gilts were quiet with prices down marginally and yields up only about 2 basis points. The FSTE made gains during the day but these were quickly pared in the late afternoon as retailers and banks retreated due to the poor housing data and the index closed down about 0.25% on the day. Other major world equity markets suffer similar scale daily losses. European equity markets opened sharply down this morning on more concerns about financial stocks. The price of oil initially rose due to oil rigs in the Gulf of Mexico being abandoned as Tropical Storm Fay approached however oil prices fell back in the afternoon after news that Fay would likely cause little damage to oil infrastructure. Brent crude for delivery in October is currently trading at about $111.
 
There is little of note out in the UK today with the next important news coming from the Bank of England minutes tomorrow.