April 2024 monthly update

Read our April monthly update – a roundup of the latest financial news and economic headlines.

Larger properties cause house prices to rise by near-record levels

Asking prices for UK homes rose sharply in April, nearing record levels. It reached £372,324 in the four weeks to mid-April. This is up over 1% from the previous month and just £570 short of the record set in May 2023.[1]

According to the property website Rightmove, this has primarily been driven by the demand for larger properties. It reported that the cost of four-bedroom detached properties and other larger house types increased by a staggering 2.7% month-on-month. Also, the number of new houses appearing on the market was up 12% annually with a similar increase in sales agreed.[2]

The London market has also experienced a robust influx in buyer interest which can be attributed to factors such as wage increases, slowing inflation, stable house prices, and a push to return to the office. Despite the demand, the average time to find a buyer increased to 71 days – the longest since 2019.[3] This could be a sign that concerns about affordability are still in play.

Mortgage rates have been volatile in recent times. The average five-year mortgage rate is now 4.84% (compared to 4.64% in February).[4] The average asking price for two bedroom homes remained almost flat month-on-month at 0.3%. This is contrasted with the non-detached, four-bedroom bracket which recorded a 0.9% rise. Year-on-year, the average price across all property types rose 1.7%; the highest annual rate in 12 months.[5]

Bank of England rate cuts expected to be delayed

The Bank of England (BoE)’s Monetary Policy Committee (MPC) is becoming increasingly divided as it prepares to set rates on 9 May 2024. While Governor Andrew Bailey appeared optimistic about the fight against inflation, Chief Economist Huw Pill stated that he wishes to be cautious.[6] In his view, falls in headline inflation are not enough of a reason to ease policy but he did allow that a reduction in interest rates from the current 5.25% is “somewhat closer”. After his remarks, the pound sterling rose against the dollar.[7]

Meanwhile, the FTSE 100 hit a record high of 8,076 points just before Huw Pill’s warning. This was in part driven by relief that the Middle East crisis has not escalated further. The UK Purchasing Managers Index rose to 54 in April – up from 52.8 in March. A figure above 50 indicates a period of economic expansion.[8] Official figures showed that, while headline inflation decreased a little last month, annual growth in the cost of services slowed less than expected.[9]

At the start of 2024, the markets predicted as many as five or six interest rate cuts but have adjusted their hopes to as few as two. In response, HSBC, Barclays, Accord, Leeds Building Society, and NatWest have increased their mortgage rates.[10]

Referring to services price inflation, pay growth, and the tightness of the British labour market, Pill said there are signs of a downward shift in the “persistent component of inflation dynamics”. Although, he insisted that the country still has a “reasonable way to go” before he will be convinced that “underlying inflation has stabilised at rates consistent with achievement of the 2% inflation target on a sustainable basis”.[11]

Tax cuts uncertain as Treasury borrows more than expected

Figures from the Office for National Statistics (ONS) show that the Treasury borrowed £11.9bn last month. The figure is £4.9bn less than in the same period last year but still higher than the £10.2bn predicted by economists. In the fiscal year to the end of March, it borrowed £120.7bn. Similarly, that is £7.6bn less than in the same 12-month period a year prior but £6.6bn more than the £114.1bn predicted by the Office for Budget Responsibility (OBR).[12]

The government ran a deficit of 4.4% of the UK’s GDP in the 2023/24 financial year which is well above the 2.7% deficit in 2019/20.[13] Moreover, it is higher than the 3% average reported in the five years before the COVID-19 pandemic. Britain’s debt agency responded to the reports by increasing its planned sales of gilts for the current 2024/25 year by £12.bn to a total of £277.7bn.[14]

Overall, government debt was around 98.3% of the country’s annual GDP last month. This is up 2.6% from the previous year and is at levels not seen since the early 1960s.[15] Moreover, the government’s interest payments could be more than expected because interest rates are no longer forecast to fall as quickly as markets had hoped.[16]

Rob Wood, chief UK economist at Pantheon Macroeconomics, believes that Chancellor Jeremy Hunt could still cut taxes again before a general election in the autumn. To create some headroom, he thinks Hunt might pencil in “unrealistically weak public spending”. He also suspects that “whoever the next government is will end up pushing through at least some tax rises to balance the books.”[17]