UK house price growth picks up ‘as confidence returns’; Bank of England interest rate decision looms – business live | Business

Retailer Next upgrades profit forecasts again

Sarah Butler

Next has upgraded its annual profit hopes by £20m to £980m after a better than expected second quarter helped by strong sales overseas.

The clothing and homewares retailer said it made £42m more profit than anticipated in the three months to 1 August with full price sales up 3.2% against its forecast of a 0.3% fall.

The upgrade comes after at least four profit upgrades by Next last year as the retailer outperformed a tough clothing market where many brands have struggled as consumers have reined in spending on non-essentials amid high energy costs and interest rates.

Sales in the UK were only slightly ahead of expectations – up +0.4% – but overseas sales online were much better than expected, up +21.9%.

The group also enjoyed strong growth at its online brands division Label, where sales rose almost 8% while sales in stores, which are mostly in the UK, sank by almost 5%.

Simon Wolfson, the chief executive, said he now expects group sales, including discounted goods and subsidiaries such as FatFace and Joules, to rise 6% for the full year, 2.6% more than previously indicated after completing the acquisition of FatFace and increasing its stake in Reiss during the year.

The rise in house prices last month shows confidence is returning to the market, argues Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners:

“UK house prices rose 0.3% in July, according to the latest Nationwide House Price Index, a slightly faster pace of growth compared to June’s 0.2% increase as consumer confidence returned to the housing market despite lingering affordability pressures for buyers.

Annual house price growth came in even stronger, accelerating by 2.1% in July compared to June’s 1.5% uplift – the fastest pace of growth since December 2022 – with the possibility of a rate cut today set to catalyse the market even further.

Newsflash: UK house prices rose at the fastest annual rate since the end of 2022 last month.

Lender Nationwide has reported that annual house price inflation rose to 2.1% in July, up from 1.5% in June.

That’s the fastest pace of growth since December 2022, when the housing market was reeling from the aftermath of Liz Truss’s mini-budget which drove up borrowing costs.

On a monthly basis, rose by 0.3% in July alone, with the average price of a property sold rising to £266,334.

Nationwide’s figures are based on mortgage approvals, so won’t track cash buyers.

Robert Gardner, Nationwide’s chief economist, points out that prices are still around 2.8% below the all-time highs recorded in the summer of 2022.

“Housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month.

While this is still c.10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment.

Today’s BoE interest rate decision is the first since the general election – the Bank went into purdah during the campaign, so we didn’t hear as much from its policymakers as usual.

Since the election, some members of the Bank’s nine-strong monetary policy committee have voiced concern over persistent inflationary pressures, including the Bank’s chief economist, Huw Pill.

“I think it’s still an open question on whether the timing for a rate cut is now,” he said earlier this month.

However, Swati Dhingra, consistently one of the most dovish members of the MPC, warned this month that it was time for the Bank to “stop squeezing living standards” and cut interest rates.

Here’s our preview of today’s decision:

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

UK borrowers may get some relief from high interest rates today, but it could be a close call.

The Bank of England is due to announce its latest monetary policy decision at noon today, and policymakers might vote to cut rates, economists suggest.

It’s a knife-edge decision, though, with the City split over whether we’ll see the first rate cut since 2020 today; the Bank could leave borrowing costs unchanged until its next meeting in mid-September.

Bank Rate is currently 5.25%, a 16-year high, where it has been pegged for the last year, to fight inflation.

Price rises have slowed to normal rates again, with CPI inflation running at the Bank’s 2% target in June, meaning a cut could be justified. The recent slowdown in wage rises could also tee up a rate cut.

However, the BoE may be concerned that service sector inflation, at 5.7%, remains too high to make a rate cut wise.

Last night, the US Federal Reserve left US interest rates on hold, but hinted that

The money markets this morning indicate there’s a 55% chance that the Bank of Engand cuts rates to 5% today, and a 45% chance that it leaves them on hold.

Overnight index swaps are pricing in a 64% probability of a cut.

Professor Andrew Angus at Cranfield School of Management says the Bank faces a dilemma::

“The current economic growth presents the Bank of England with an interest rate paradox. One reason for the economy’s stronger than expected performance is the expectation that rates will fall this Thursday, having been stubbornly sat at 5.25% for the last 12 months.

But persistent challenges, such as rising wages and strong service sector prices, could push the Monetary Policy Committee to be more cautious. It’s a Catch-22 situation: if the BoE doesn’t follow through, it could send shockwaves through the market.”

But…S&P Global Market Intelligence expects the BoE to maintain its Bank Rate at 5.25% at tomorrow’s meeting, with the first cut likely to occur in September.

They explain:

We acknowledge it is a close call after several Monetary Policy Committee (MPC) meeting who voted against a proposition for a 25-bp rate cut described their decision as “finely balanced” in the June meeting. This could be interpreted as a sign that they are closer to voting for a rate cut.

However, earnings and inflation developments since last month’s meeting suggest a vote for a rate cut tomorrow would be a risky decision with the fundamentals not yet in place to deliver medium-term price stability. The BoE needs to avoid any collateral damage to its inflation-bursting credentials by cutting rates too soon, resulting in a damaging start stop monetary loosening cycle.”

The agenda

• 9am BST: Eurozone manufacturing PMI for July

• 9.30am BST: UK manufacturing PMI for July

• Noon BST: Bank of England interest rate decision

• 12.30pm BST: Bank of England press conference

• 1.30pm BST: US weekly jobless claims report