Table of Contents
- Eurozone inflation has fallen faster than anticipated a month ago, easing living costs.
- U.K. house prices are falling at the fastest annual rates since 2009
- Former U.S. Treasury Secretary Larry Summers says Brexit was a “historic economic error” that has hurt the U.K. economy, driving up inflation.
Eurozone inflation falls further than anticipated easing pressure on the U.K. economy
The inflation rates in the Eurozone have fallen faster in May than previously anticipated resulting in lower energy prices and a drop in core CPI (Consumer Price Index.) The zone’s CPI slowed to 6.1% in May YoY (Year over Year) vs. the expected 6.3%, a significant drop from the 7.0% rise recorded in April.
The Core CPI also dipped to 5.3% in May vs. 5.5%, which was expected, a significant drop from the 5.6% recorded in April.
The fall in the inflation rates takes the annual inflation closer to the European Central Bank’s (ECB) target of 2%. However, the prices are still rising three times fast as the ECB is aiming for. The inflation rates in commodities are as follows:
- Food, alcohola& tobacco +12.5%
- Other goods +5.8%
- Services +5.0%
- Energy -1.7%
European stock markets are rising from their lowest level in two months
The FTSE 10o index has gained 48 points/ 0.65% to 7494, following news that the U.S. House of Representatives had passed the Fiscal Responsibility Act n Wednesday. Investors are taking this news well, sending the U.K. stock market into greener zones, last recorded two months ago.
U.K. house prices fall at the fastest pace since 2009 while mortgage approvals fall
The prices of houses in the U.K. are falling fast at an annual rate last seen in 2009. The prices of houses decreased by 3.4% in the past 12 months ending May 2023, the biggest drop since July 2009, when an annual fall of prices by 6.2% was recorded.
A report from Nationwide indicates that house prices had remained flat over the past month after seasonal effects had been considered. Now they stand at an average price of £260,736 which remains 4% below the peak last seen in August 2022.
Though the prices are falling, Robert Gardner, the Nationwide chief economist, has warned that headwinds to the housing market will most probably strengthen over the coming months. He says investors should prepare to acquire mortgage deals for fixed rates above 5% as the government may keep increasing interest rates.
“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-budget in September last year.”
The housing market is still unstable in the U.K. economy as the number of mortgage approvals has fallen as buyers return. A report from the Bank of England shows that there were 48,690 new mortgages signed off in April, down from 51,488 recorded in March.
The new mortgage figures are also 26.0% lower than the average numbers recorded between 2018 and 2019.
Brexit was a catastrophic economic mistake; Larry Summers
In an interview with Radio 4, Larry Summer, a former U.S. Treasury Secretary, said that Brexit was a historic economic error that pushed up inflation and will go down as the event that reduced the competitiveness of the U.K. economy globally.
When asked why inflation is haunting the U.K. in a significantly bigger way than the U.S., Summers said:
“I think Brexit will be remembered as a historic economic error that reduced the competitiveness of the U.K. economy, put downward pressure on the pound and upwards pressure on prices, limited imports of goods, and limited in some ways the labor supply. All of which contributed to higher inflation.”
Reports have found that Brexit food trade barriers have cost the U.K. economy 7 billion Euros. As such, it has made the inflation rates more menacing, pushing citizens to the corner. When asked about the possibility of a recession, Summers said he would be surprised if two more years passed before the U.K. entered a recession.
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