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More good news on house prices – there’s no sign of them picking up soon

Let’s turn away from the fun of Brexit for the time being.

Let’s look at something far more important.

Let’s have an update on how the UK housing market is doing.

You could make our housing system worse, but you’d have to try hard

British house prices are far from being the world’s most important asset class. But the statistics tell me, that in the eyes of our readers and most of the British public, a spike in the ten-year US Treasury yield, a plunge in the price of oil, or a slide in the Chinese yuan, are as nothing compared to a blip in the fortunes of the most coveted asset in the UK.

And frankly, no wonder. Most of us have ploughed most of our present wealth into said asset, and many of us continue to plough massive chunks of our monthly income into it as well.

It’s hard for it not to loom large in our minds when, on top of all the emotionality of a home, you have a huge, floating-rate (or temporarily fixed-rate) debt attached to it. In many ways, those of us with mortgages are just sitting on epic spread bets.

The prize at the end of the road, is that you get to keep your house. Yes, it might have risen in value, but that’s beside the point. If you live in a house, you’ll need to buy another one. So the cost of that will have risen too.

And the government will then take a hefty chunk in the form of stamp duty – or to use a more accurate term, the “moving tax”. Once you’ve paid this moving tax, downsizing may no longer look like a viable method of “unlocking the value” in your home.

On the other hand, the risk you take is that it all goes pear-shaped and you either lose the roof over your head, or you end up desperate to move but you can’t, because you’re in negative equity (your mortgage is worth more than the equity in the house).

Wow. It’s pretty stressful when you look at it like that. You’d think we’ve have come up with a better system by now.

Particularly as it also means that the health of the banks – who provide our all-important financial plumbing – is  leveraged to the health of the labour market, and therefore to economic growth. Which in turn is dependent on credit growth, and therefore on the health of the banks.

It’s one giant positive feedback loop. That sounds like a good thing, but it’s not. A negative feedback loop is one where you do something stupid, you get a slap on the wrist (negative feedback), and you stop doing it. That system tends towards equilibrium – stability.

A positive feedback loop is where you do something stupid and you get a pat on the back (positive feedback). So you keep doing it. Until one day you do something so catastrophically stupid that rather than a pat on the back or a slap on the wrist, you get a punch in the mouth. That system tends towards wild swings – or “boom and bust”, as it’s more commonly known.

I’m sure you could design a worse system if you tried (and make no mistake, this stuff is hard – if it was easy, it wouldn’t be a problem in the first place, and people who think it’s easy and wade in with their brilliant ideas usually make things worse).

The trouble is, any significant change will create losers, and a lot of them at that. So change is likely to be slow when it happens, and it will involve incremental shifts that target the politically vulnerable – such as buy-to-let landlords, for example.

The slowdown in UK house prices is not all down to Brexit

Anyway, rant over for now. What’s actually happening to prices?

According to the latest figures from Nationwide, house prices rose at an annual rate of 1.9% in November. That’s a fall in “real” (inflation-adjusted) terms, regardless of whether you gauge that by CPI, RPI, RPIX or wage inflation.

And the Royal Institution of Chartered Surveyors (Rics) isn’t feeling too cheerful either. More of their members are reporting falling prices than at any point since September 2012.

They are pinning the blame on Brexit. At this point, there’s probably something to that. To be clear, I don’t think that Brexit will have the sort of effect on house prices that should persuade the average individual to delay or accelerate a long-term decision like buying a house.

That’s not because of my political views on Brexit; it’s more because this is going to be a lengthy process one way or another (even a “hard Brexit” would involve a lot of back and forth after the initial deadline). So trying to time your sale or purchase (unless your job is likely to be directly affected by Brexit) is somewhat futile.

But if people settle on the idea of “let’s not put the house on the market until after March”, then that will obviously have an effect on the market. You can’t buy if there isn’t much out there for sale.

So there’s a bit of Brexit in there. And it’s a wonderful excuse for property commentators to settle on.

But this sense of pessimism is not new. And it’s not limited to the UK. Various overpriced parts of Australia and Canada are both seeing what I suspect is the start of a prolonged house price crash. Neither of them are attempting to leave the European Union.

The real problems with global house prices – politics and interest rates

The real issue is that both politicians and central bankers have woken up to two things. One is that “the people” are fed up of feeling unable to buy property anywhere near where they work. Two is that the 2008 financial crisis was caused by banking exposure to residential property.

On the first point, it means that politicians make various rules that make it harder for certain buyers – second home owners, landlords, and rich foreigners. On the second point, central banks might not all be raising interest rates, but they are making it harder for banks to lend against residential property. Mortgage lending is getting stricter.

On top of that, you have the fact that global capital no longer likes the idea of tying itself up in assets that are illiquid and physically impossible to shift from one country to another. And on top of that, you’ve got the fact that interest rates – the key driver of the price of a yield-focused asset like housing – are slowly but steadily grinding higher.

Will Britain avoid an actual house price crash? My gut still says “yes”, at least for now. One big risk is that nothing bad happens with Brexit (we get some variation of Theresa May’s deal, say, and we set the course for several more years of hardcore Remainer–Brexiteer sniping, but no real change).

That’s when the Bank of England might have to start paying attention to rising wages and think about hiking interest rates. Yet with most people on fixed-rate mortgages, it would probably take a while even for this shift to make itself felt.

So the “golden scenario” – whereby prices fall a bit but wages rise a good bit faster, and so you get a correction in “real” terms rather than nominal ones – still looks very possible.

Maybe then we can look at a better way to do things. But I wouldn’t bet on it.

Source: Money Week

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Average house prices still growing but at the lowest annual rate for six years

Annual house price inflation has fallen to its lowest rate for six years, Halifax has revealed.

The November Halifax House Price Index revealed that house prices grew just 0.3% annually, the slowest rate since December 2012 and down from 1.5% in October.

Prices also declined on a monthly basis by 1.4%, leaving the average at £224,578.

Russell Galley, managing director at Halifax, said: “While this is the lowest rate of growth in six years, it remains within our forecast range of 0% to 3% for 2018.

“High employment, wage growth and historically low mortgage rates continue to make home ownership more affordable for many, though the need to raise a significant deposit still acts as something of a restraint on the market.

“This is largely offset by relatively limited supply of new and existing properties for sale, which continues to sustain house prices nationally.”

Commenting on the figures, Sam Mitchell, chief executive of online agent Housesimple, said: “On first glance, these figures might set alarm bells ringing, but we need to put them into context before manning the panic stations.

“There’s an unprecedented level of political turbulence battering the country at the moment and that is inevitably feeding through to house prices.

“We didn’t see the traditional autumn bounce in transaction levels this year, but after a subdued summer and three months of Brexit wranglings, it was probably more hope than expectation that the housing market would just power through.

“All things considered, the property market is actually holding up incredibly well in extremely testing times. And there are areas of the country, such as the north-west and Yorkshire, which seemed to have brushed off Brexit fears.

“Transaction levels have been surprisingly strong and some impressive prices are being achieved, many close to asking price.

“While the affordability problem has caught up with the housing market in the south, the north is enjoying a mini boom thanks to cheaper property stock and a strong jobs market.

“Looking forward, a lot of buyers have probably decided early to wait until the New Year before making any decisions about purchasing so December is likely to be quiet. But that could all change depending on Brexit this week.”

Source: Property Industry Eye

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Annual house price growth in UK at its slowest for six years

THE brakes have been slammed on annual house price growth – which has slowed down sharply to the weakest rate seen in six years, according to an index.

Across the UK, property values increased by 0.3 per cent annually in November, following a 1.5 per cent annual uplift in October, Halifax said.

The annual increase in November marked the lowest growth since December 2012, the bank added.

The average house price is now £224,578.

House prices tumbled by 1.4 per cent month on month in November, wiping out a 0.7 per cent increase seen the previous month.

Halifax said house prices have now fallen for three months out of the past four, on a month-on-month basis.

Russell Galley, managing director, Halifax, said: “House price growth has slowed as we approach the end of the year, falling from 1.5 per cent in October to 0.3 per cent in November, with the average cost of a home now £224,578.

“While this is the lowest rate of growth in six years, it remains within our forecast range of zero to 3 per cent for 2018.

“High employment, wage growth and historically low mortgage rates continue to make home ownership more affordable for many, though the need to raise a significant deposit still acts as something of a restraint on the market.

“This is largely offset by relatively limited supply of new and existing properties for sale, which continues to sustain house prices nationally.”

Mike Scott, chief property analyst at estate agent Yopa, said Halifax’s figures suggest “that the usual Christmas slowdown in the housing market has started early this year, as people wait for the outcome of the current political turmoil before making long-term commitments, such as buying a new home”.

Howard Archer, chief economic adviser at EY Item Club, said: “We suspect that the housing market will be relatively lacklustre over the coming months – although there are varying performances across regions with the overall national picture dragged down by the poor performance in London and parts of the South East.

“Consequently, we expect overall house price gains across the UK over 2019 will be limited to around 2 per cent.”

Lucy Pendleton, founder director of estate agents James Pendleton, said: “This is less about Brexit, than it is about the natural cycle of any market that has seen strong advances. It comes down to affordability, not politics.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Lenders remain incredibly keen to lend and that is a consistent message we are getting from all of them – they want to do more.

“Some are doing this by topping the ‘best buy’ tables with some very competitive rates, such as five-year fixes from less than 2 per cent.

“But not all can compete on rate, depending on how they are funded, so others are looking at increased innovation – taking one year’s accounts for self-employed borrowers, tweaking loan-to-values, or becoming more competitive when it comes to lending at 95 per cent loan-to-value. This is all good news for borrowers.

“This year has been remarkably consistent for the market when you consider the uncertainty around Brexit, with interest rates remaining fairly flat – a trend we expect to continue into next year.”

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors, said: “Looking forward, we don’t expect activity to change much, bearing in mind seasonal and political distractions. On the ground, lethargy is replacing energy.”

Source: Irish News

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House Prices Drop in October After Budget and Brexit Negotiations

Figures recently released by Nationwide indicate that in October, annual house price growth fell to 1.6% from the 2% reported the previous month.

Market watchers suggest that the lower activity for 2018 house prices is partly due to movers waiting to see if any of this year’s Budget include any positive changes for them, such as a reform of Land Tax and Stamp Duty.

It is also possible that buyers and sellers are holding off until more information is available on a Brexit deal before making any major decisions.

Nationwide Chief Economist Robert Gardner said that there was a slowdown in house price growth in October, moving annual growth below the 2 to 3% witnessed over the previous 12 months. He added that this was in line with expectations, as tighter household budgets and economic uncertainty would naturally reduce demand, and he expected to see 2018 house prices go up by around 1% over the course of the year.

Mike Scott, the chief property analyst at Yopa, an online estate agency, said that the October house price index reveals a renewed slowdown and that the number of house sales is well-below their 2007 peak.

He pointed out that the numbers of first-time buyers and cash buyers have resumed their pre-boom levels while the number of buys to let purchases was ascending until 2015 when the tax system put buy-to-let investors at a disadvantage and caused their numbers to fall to around one-third of the 2007 level.

Former RICS residential chairman Jeremy Leaf explained that political and economic uncertainty was causing judgments to become clouded at a time when the UK economy does not appear to be in bad shape.

He said that the good news was that first-time buyers are replacing investors, which is a bonus if sellers appreciate the importance of negotiation.

Brian Murphy, Mortgage Advice Bureau Head of Lending, also saw a mixed outlook. He suggested that ongoing economic and political uncertainty was causing movers in some areas to adopt a ‘wait and see’ attitude, which has made the market more subdued in some areas.

Mr. Murphy added that in regions like Yorkshire and the Humber, the Midlands, Wales, and Scotland, buyer sentiment remains positive and markets continue to perform well. This means that in these regions, property prices have enjoyed greater average yearly increases than the national rate of growth in the headlines.

If a Brexit agreement is finalised by November 21, there will likely be a last-minute rush of activity from homebuyers and sellers as bottled-up demand in some regions may encourage movers to get a purchase or sale confirmed before Christmas, resulting in a late-year market revival.

The Bank of England’s announcement of its intentions to keep interest rates at their present level will likely see lenders continue to make low production rates available in an effort to encourage new mortgage customers and keep existing borrowers in the last months of 2018, resulting in a market upswing. If not, and the current holding pattern continues, November housing market activity could be a disappointment.

Source: CRL

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House prices rise as market shakes off Brexit uncertainty

House prices in Britain’s cities increased by 3.2% annually in October, as the ongoing Brexit political saga failed to dent market activity, according to data analysis.

The biggest value growth is in Leicester, where prices have jumped by 7.7% year-on-year, property company Hometrack found.

At the other end of the scale, values fell by 2.8% annually in Aberdeen.

In London house prices dropped by 0.4%, which is a result of “weaker market fundamentals”, with Brexit uncertainty acting as a compounding factor, Hometrack said.

Brexit impact limited so far
However, the impact of the UK’s withdrawal from the European Union (EU) has so far had a limited impact on the market, the firm’s analysis suggested.

The near-term outlook for UK city house prices is down to projections for the economy and mortgage rates, as well as households’ expectations for employment.

If the government gets the proposed withdrawal deal, and transition period, approved by parliament, the outlook for city housing markets in 2019 could mirror 2018, Hometrack predicted.

Richard Donnell, insight director at Hometrack said: “Two and a half years on from the Brexit vote, our analysis reveals a limited direct impact from Brexit uncertainty on the housing market thus far.

“Large regional cities continue to register above average house price inflation with the discount between asking and sales prices narrowing on rising sales volumes.

“In the very near term we expect market trends to continue until the outlook becomes clearer.

“Housing markets in regional cities certainly appear to be in more of a business as usual mode while the London market continues to adjust though modest price falls.

“Our lead housing indicators suggest no imminent deterioration in the outlook for prices or levels of market activity.”

Source: Your Money

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Buyers eye up Christmas offers as prices slip in November

Homeowners hoping to sell their house are slashing prices and expectations, in a move that signals a boon for buyers in the run-up to the festive season.

Property prices tumbled 1.7 per cent this month, marking the largest November drop since 2012, with London’s stagnant housing market continuing to see a sharper decline than any other UK region.

While prices typically edge down ahead of the Christmas period, today’s data from Rightmove signals a higher-than-usual drop as sellers lower their demands in a bid to lure in cautious buyers amid Brexit uncertainty and wage stagnation.

Inner London’s house prices saw the sharpest monthly fall, with values from October to November dropping 2.5 per cent to an average £754, 726. However, the lowering of prices has signalled a slight uptick in activity, with a modest one per cent rise in the number of November sales compared with the same month last year.

“Some new-to-the-market sellers and their agents have acted early to try to improve the buying mood and avoid the traditional “buyer humbug” dislike of Christmas housing activity,” according to Rightmove director Miles Shipside.

He added: “While many thought that the down-to-the-wire Brexit deal uncertainty would hold people back from buying, more buyers have actually jumped in. Some buyers see this pre-Christmas price lull as a gift to their negotiations. It proves that people need to get on with their lives and will continue to buy homes if the underlying economic fundamentals remain strong.”

Prime Central London’s market has seen one of the most noticeable price drops in the last 12 months, underlined by a slowdown in high end residential areas such as Kensington.

Stamp duty and market volatility have helped deter a swathe of wealthy buyers looking to snap up homes in the capital, with a recent LonRes study showing prices across prime London dipped three per cent in the third quarter of 2018 in the wake of greater buyer uncertainty.

Source: City A.M.

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House prices up 5% but market mindful of Brexit

The housebuilder said the rise to an average price of £224,000 comes as more people are seeking to buy homes and are better able to do so in a more favourable lending climate.

The firm, which has 27 sites across Scotland, said total completions for the period increased 2% at 902, up from 882 in the same period last year.

A spokesman for the company said: “The market in Scotland has been positive during the second half of 2018, with good customer demand and a supportive lending environment driving an increase in completions for the period.”

The company said in a statement to the London Stock Exchange that the UK housing market has remained stable through the second half of 2018, despite the wider political and economic uncertainty.

It said customer demand for new build homes continues to be robust, underpinned by low interest rates and a wide choice of mortgage deals.

Sales rates for the year to date have stayed level with last year.

The company, which finished the day on the stock exchange 1% up at 164p, said it expects to end the year with a net cash balance of around £600 million, against £512m last year.

Its current total order book is 9,783 homes, which is 12% above last year when it was 8,751, and it is worth about £2.4 billion, up by 9% from £2.2bn last year.

The company said in its statement: “This is at the upper end of our expectations at this stage, and we would expect this to reduce naturally towards the end of the year as more homes complete.”

Pete Redfern, Taylor Wimpey chief executive, said there is a watchful eye on Brexit but that the company’s order book is healthy.

He added: “We have delivered a strong performance during the second half of 2018, with very good sales rates supported by positive customer demand and a supportive lending environment.

“This builds on our strong forward order book and puts us on track to meet full year expectations.

“Looking ahead to 2019, we remain mindful of wider political and economic risks and the potential impact on customer confidence.

“However, with a strong balance sheet in place and a high-quality landbank, our business is well positioned to deliver further sustainable growth and cash flow over the medium term.”

Source: Herald Scotland

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RICS: House prices, demand and supply all in decline

There has been a fall in interest from new house buyers leading to a more negative trend in house prices, according to the latest RICS UK Residential Market Survey.

While the regional picture remains varied, surveyors are doubtful that house sales momentum will pick-up over the coming months.

In the October survey, 10% more respondents saw a fall in house prices at the headline level. (-2% net balance previously). This is the weakest reading since September 2012, and mostly stems from London and the South East.

East Anglia, the South West and the North East also saw negative price balances, but prices continue to rise in other parts of the UK, with the strongest growth in Northern Ireland and Scotland.

Looking ahead, three-month price expectations are also slightly negative at a national level, and the national outlook for the year ahead is broadly flat.

First-time buyers

For those looking for their first properties, the market is relatively steady price wise. Reporting on properties listed at up to £500k and below, a slim majority of survey participants reported that sales prices have been at least level with ask prices.

However a third (34%) stated sales prices were coming in up to 5% below. Homes in the highest price brackets are noticeably below asking price.

New buyers

RICS says the weaker trend in prices is being driven by the lack of demand from new buyers, which is in part a result of heightened political uncertainty, ongoing affordability pressures, a modest upward move in interest rates and a lack of fresh stock coming onto the market.

In October, 14% more respondents reported a fall in buyer interest, which is the third report in a row in which demand has deteriorated.

Simon Rubinsohn, chief economist of RICS, commented: “Although the tone of much of the newsflow surrounding the housing market remains downbeat, this continues to disproportionately reflect developments in the south and east of England with the picture remaining rather more resilient in many other parts of the country.

“Uncertainty about the economic outlook on the back of the never-ending Brexit negotiations appears a key drag on sentiment according to respondents to the survey.”

Slowdown in new instructions

In terms of new instructions, and the supply pipeline, virtually all UK regions saw a further decline as average stock remains very close to an all-time low.

Furthermore, there appears little chance of any meaningful turnaround, as a net balance of 30% of respondents reported the number of appraisals to be down year on year.

October saw the third consecutive monthly decline in housing transactions and sales were reported to be either flat or negative across eleven of the twelve UK regions/countries.

Rents set to rise

In the lettings market, the quarterly (seasonally adjusted) data points to an improvement in tenant demand during the three months to October.

Alongside this however, landlord instructions continued to fall, remaining negative for a tenth straight quarter (the longest negative stretch since this series was formed in 1999). On the back of this, rents are expected to rise over the coming months albeit only modestly.

Source: Mortgage Finance Gazette

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House prices fall across half of London

House price inflation in UK cities hit 3.2 per cent in September, down from 3.8 per cent a year ago. Latest figures from Hometrack showed that 54 per cent of London City postcodes are registering annual price falls.

This is more than the 45 per cent reported six months ago but less than in June as more areas start to register monthly price increases.

However it wasn’t all bad news across the country with house prices in five UK cities increasing by more than 6 per cent a year.

Liverpool recorded annual inflation at 6.9 per cent, followed by Birmingham (6.5 per cent) and Leicester (6.4 per cent).

Danny Belton, head of lender relationships at Legal & General Mortgage Club, said: “The North/South divide has truly been turned on its head, as more and more first-time buyers and homemovers turn towards regional cities for better value for money.

‘Strong economic hubs in the Northern powerhouses are making bricks and mortar in these locations particularly attractive to younger generations here and buy-to-let landlords.

“However, with rising living costs, saving for a deposit remains one of the biggest challenges for potential buyers. Affordability challenges remain, which means that speaking to a mortgage adviser is still a sensible first step.”

City Average price Trough-current Peak-current Last 12 months Last 3 months Last month
Aberdeen £163,200 6.50% -5.50% -4.40% 0.50% 0.30%
Belfast £129,700 28.40% -41.90% 3.80% 0.50% -0.90%
Birmingham £163,500 41.30% 19.40% 6.50% 2.60% 0.50%
Bournemouth £290,400 52.00% 25.00% 3.20% 0.00% -0.20%
Bristol £277,600 71.60% 39.20% 1.20% -0.50% -0.50%
Cambridge £435,500 88.30% 56.60% 0.40% 1.30% -0.30%
Cardiff £206,200 39.90% 16.80% 4.50% 1.00% 0.20%
Edinburgh £231,700 29.80% 9.10% 4.70% 1.60% -0.20%
Glasgow £122,800 22.60% -0.40% 6.20% 1.40% 0.20%
Leeds £164,900 31.40% 8.60% 4.30% 1.00% 0.10%
Leicester £174,800 46.60% 23.40% 6.40% 1.90% 0.50%
Liverpool £120,500 22.70% -3.80% 6.90% 2.80% 0.70%
London £484,400 84.80% 56.10% -0.40% 0.40% 0.10%
Manchester £167,800 39.60% 17.10% 6.20% 1.90% 0.40%
Newcastle £129,300 17.10% -2.20% 2.80% 1.30% 0.40%
Nottingham £152,300 41.50% 19.00% 5.40% 1.30% 0.00%
Oxford £423,300 75.70% 49.80% 5.50% 2.30% 0.60%
Portsmouth £240,600 53.20% 30.30% 2.90% 0.60% 0.30%
Sheffield £139,500 28.50% 10.10% 5.80% 3.30% 1.10%
Southampton £228,200 48.60% 24.50% 1.90% 0.40% 0.00%
UK £217,400 41.40% 20.20% 3.40% 1.40% 0.30%

In chancellor Philip Hammond’s Budget on Monday (October 29) there was good news for first-time buyers.

The Help to Buy equity loan scheme was extended by two years, now running until 2023 rather than 2021.

Additionally, the new scheme will be for first-time buyers only and a new regional property price cap will be applied to the scheme from April 2021 onwards.

The chancellor also announced that stamp duty relief will be extended to those who purchase properties up to a value of £500,000 through the shared ownership scheme.

This policy will be backdated to the last budget so that anyone who has purchased a property through the scheme since 22 November 2017 will be entitled a refund.

Source: FT Adviser

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It’s hard to believe, but Britain’s economy doesn’t look too bad right now

Wages are rising. Employment is at record levels. Inflation is relatively tame. The cost of borrowing is low. House prices are flat or barely rising. The economy is growing.

Where is this paradise?

Chances are, you live there.

Yesterday, we learned that inflation in the UK was not as high as expected last month.

Inflation is one of the most politically sensitive national statistics out there. Even the most economically uninterested people get quite engaged when you talk about the cost of living.

You can usually tell how important a statistic is by counting the number of ways there are to measure it. And inflation doesn’t disappoint.

There are many ways to measure inflation. And oddly enough, the measures that the government seems to prefer are the ones that show that prices aren’t rising as fast as you might think they are.

There’s the consumer prices index (CPI). This is the official inflation measure – the one that the Bank of England has to maintain within one percentage point either side of 2%.

CPI in September grew at an annual rate of 2.4%, according to the Office for National Statistics (ONS). That was down from 2.7% in August and also below expectations for 2.6%.

There’s the retail prices index (RPI). This was the basis for the Bank’s old inflation target, although the Bank targeted a version known as RPIX, which excluded mortgage costs from the inflation figures (because if you didn’t exclude mortgage costs, then when the Bank raised interest rates to target inflation, it would in fact drive inflation higher). Under RPIX, the target was 2.5%.

These days, RPI has been cast into the outer darkness as it’s considered to be flawed (if you’re interested in arcane statistical arguments then you can read all the arguments on the Office for National Statistics website).

As a result, it takes a bit of effort (not much, but enough to put off your average newbie journalist with no history of reporting on inflation data) to find it. It also – completely coincidentally, I’m sure – almost always shows inflation to be higher than the CPI does.

RPIX rose at an annual rate of 3.3%, down a bit from 3.4% in August.

There’s another measure that the ONS is currently trying to push very hard. If you look at the inflation data, then before you even get to CPI, you get CPIH. That is, CPI including owner occupiers’ housing costs.

Right now, according to CPIH, inflation is even lower – rocking in at a mere 2.2%.

At the end of the day, we can play around with the statistics all we want. And it’s good to look at these things with a somewhat jaundiced eye. The idea that we need inflation to be rising at a specific level is a very recent conviction and one I suspect that future generations will wonder about.

But we are where we are, and the good news for the Bank of England is that an inflation reading like this gives the central bank all the cover it needs to keep interest rates on hold. That of course, is not great news for savers – but savers are used to that by now, aren’t you?

The UK economy has been in worse condition

So what does all of this point to?

Well, taken as a moment in time, this is all actually rather good news for the UK. First, wages are rising at 2.7% a year (including bonuses) or 3.1% a year without them. You can quibble about why this is (one-off rises for the NHS, for example). But the fact remains that wages are rising more rapidly than they have in quite some time.

If you want to use CPI, this means that wages are rising in “real” terms (after inflation). If you want to use RPI, it means they’re still falling, but less steeply than they were.

If wages are going up, and unemployment is going down, then that means as a whole, consumers are going to have more money to spend. That’s good news.

Secondly, the other big bane of our lives – ridiculously high house prices – shows signs of slowly changing. Using the ONS house prices index, prices went up by 3.2% in August, compared to 3.4% in July (this latter was revised up from 3.1% – not all of the figures are available when the first estimate is released).

So on a national basis, prices are rising a little more rapidly than wages, but nowhere near at the rate they were. And both measures are going in the right direction – wages growth is rising and house price growth is slowing.

It doesn’t mean that any of this will last. It doesn’t mean we’ll get the “beautiful deleveraging” (to steal a Ray Dalio phrase) on UK house prices that we hope for.

But I would suggest that if the national conversation wasn’t being dominated by Brexit, then people would probably be feeling relatively upbeat about the UK economy. And that if the Brexit gloom ever lifts, then having at least some exposure to the UK market might turn out to be a good bet in the longer run.

Source: Money Week