Johnson’s Daunting Economic Task Seen in U.K.’s Housing Malaise

(Bloomberg) -- The scale of Boris Johnson’s challenge to revive the U.K. economy was laid bare on Wednesday as house prices posted their first annual decline since 2012 and firms reported a record slump in sales.

The prime minister on Tuesday unveiled part of his plan for boosting the U.K.’s recovery, reconfirming his commitment to long-term investment in some of the country’s most deprived regions. Still, the data suggest the more short-term stimulus will be needed after the damage wrought by the lockdown.

June house values dropped 0.1% from a year earlier to an average of 216,403 pounds ($267,000), according to Nationwide Building Society.

“It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic,” said Robert Gardner, Nationwide’s chief economist. “The medium-term outlook for the housing market remains highly uncertain.”

The housing market, which was all but shuttered for weeks thanks to the nation’s lockdown, is slowly reopening. Activity is far from normal, with many estate agents turning to virtual viewings, while actual sales in May were 50% lower than in 2019.

Companies are also suffering. Measures of sales, orders and cashflow in the nation’s dominant services sector have plunged by the most in the 31-year history of the British Chambers of Commerce’s quarterly survey. Sentiment in manufacturing industry slid to the weakest level since the financial crisis.

Factory output stopped falling last month, but the outlook for employment is a concern, according to the IHS Markit PMI survey.

There’s also been a spate of bad news from companies. Airbus SE and EasyJet Plc are considering reducing U.K. staff, while a number of high street firms, such as suitmaker TM Lewin and SSP Group, which owns the Upper Crust sandwich chain, have also said the pandemic is putting
jobs at risk.

What Our Economists Say:

“While the latest Nationwide figures recorded a second monthly drop in house prices, policy measures will cushion the extent of the shock in the coming months. The real test will come later this year as repayment holidays expire and unemployment increases.”

-- Niraj Shah. Click here for the full U.K. REACT

“With lockdown restrictions steadily easing, the second quarter is likely to prove to be the low point for the U.K. economy,” said Suren Thiru, head of economics at the BCC. “However, the collapse in forward looking indicators of activity suggests that unless action is taken, the prospect of a swift and sustained recovery may prove too optimistic.”

While Bank of England Chief Economist Andy Haldane said Tuesday the recovery may be stronger than predicted, others are less optimistic, with the majority of the 7,706 companies surveyed by the BCC saying they expect turnover to worsen over the next year, with the proportion planning to invest in machinery or staff training slumping.

Rising unemployment and the increasing unwillingness of lenders to take on risk mean that prospects are unlikely to improve dramatically. Two-thirds of firms reported a worsening cash position, which could hamper activity and staff retention, the BCC said.

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