BoE Holds Rates, Home Prices Fall

123jump.com Staff
10 Jul, 2008
New York City

UK home prices fell 6.1% in June from a year ago and fell 2% from May. Home prices declined to 15-year low on tighter credit, falling disposable income and stagnant wages. Separately, FTSE 100 index dropped 2.2% as investors worried that record fuel prices and falling home values will drag economy in recession. In addition, the Bank of England left its key lending rate unchanged at 5%. Retailers fell after Goldman Sachs lowered outlook on leading retailers.

[R]2:00PM New York, 7:00PM London - U.K. house prices fall 6.1% in June reaching a 15-year low. Retailers and home builders fell. The Bank of England kept interest rates on hold.[/R]

Stocks in London fell after a report showed that U.K. home prices fell to a 15-year low in June on falling disposable incomes, rising prices and soaring oil and raw material prices. Also news that home builder Barratt Developments will restructure and lay off 18% of its staff and close two divisions added to market jitters.

Market sentiment

In London trading FTSE 100 dropped 2.2% or 122.8 at 5,406.80.

Of the 102 FTSE 100 stocks 11 rose and 91 declined. Experian Group led advancers in the index shares with a rise of 7.89% followed by First Group increasing 3.60%.

U.K. House Prices Slump 6.1% in June

HBOS reported on its Web site today that house prices dropped to a 15-year low by 6.1% to £180,344 from a year ago and declined 2% from May. Prices however remain 2% higher than two years ago.

According to the report, home prices are falling on a decline in disposable incomes, the rapid increase in house prices in the last few years and the drop in credit availability.

In the year to April, average earnings rose 3.8% compared with a 4.2% rise in the headline rate of retail inflation in the same period.

The report contends that the housing market continues “to be underpinned by sound fundamentals” as employment is at a record 29.55 million. Also total employment increased by 76,000 in the quarter to April from the previous three months.

HBOS chief economist Martin Ellis said, “House prices have declined by 6.1% over the past year. Nonetheless, the average UK price remains slightly higher than two years'' ago and is appreciably stronger than three or four years ago.”

House prices fell by 2.0% in June compared to 2.5% in May, a slight moderation in the recent rate of decline.

He further added, “The average UK home price has risen by 150% during the past decade from £72,096 to £180,344; an increase of £108,248. Prices have risen by 196% (£119,379) since the bottom of the 1990s housing market downturn in July 1995.”

Bank of England Keeps Rates on Hold

The Bank of England reported today that the monetary policy committee has elected to keep its benchmark interest rate at 5%.

UK economy is facing falling home prices, rising inflation due to soaring fuel and raw material prices, and slowing economic growth.

Gainers & Losers

Experian Group led advancers in the FTSE 100 index shares with a rise of 7.89% followed by rises in First Group of 3.60%, in Vedanta Resources of 2.87%, in Marks & Spencer of 2.67%, and Eurasian Natural of 1.95%.

Experian Group rose after reporting today that first quarter profit increased 21% on growth in its Interactive and Decisions Analytics divisions.

Commodity stocks rose on rising oil prices as tensions continued after Iran test fired its missiles yesterday. Rio Tinto advanced 1.18%, BHP Billiton gained 1.05% and Antofagasta edged up 0.61% as a result.

Thomas Cook led decliners in the FTSE 100 index shares with a drop of 9.22% followed by losses in Cadbury Plc of 7.50%, in ICAP Plc of 7.46%, in Intercontinental of 7.14%, and ITV of 6.74%.

Retailers fell after Goldman Sachs downgraded UK retailers. Kingfisher dropped 5.26% after the brokerage added the company to its “conviction sell” list. Next plc fell after Goldman Sachs lowered its recommendation to “neutral” from “buy”.

Homebuilders slumped as house prices fell to a 15-year low. Hammerson slid 2.94% and British Land edged down 4.01%.