U.K. mortgage rates surged to the highest in eight years and consumer confidence dropped as the worst housing slump in three decades deepened.
“This is doom and gloom,'' said Alan Clarke, an economist at BNP Paribas SA in London. “The housing market is in freefall and unemployment is rising.''
The rate on a home loan fixed for two years rose to 6.63 percent in June, the highest since February 2000, the Bank of England said today in London. The 0.37 percentage point increase from a month earlier is the biggest since October 2003. Nationwide Building Society's index of consumer sentiment dropped to the lowest level since the survey began in May 2004.
The U.K. is skirting a recession as house prices fall, oil costs rise to a record and lenders refuse to pass on the Bank of England's three interest-rate cuts since December. Policy makers, who make a rate decision tomorrow, said last month that they considered increasing borrowing costs after inflation accelerated to 3.3 percent, the fastest pace in at least a decade.
“The Bank of England's credibility is in question with the worst peak in inflation in its history, but there are a lot of reasons not to hike now,'' BNP's Clarke said.
Rate Decision
All but one of 49 economists in a Bloomberg News survey predict the Bank of England will keep the key rate unchanged at 5 percent tomorrow. Nationwide said there is a 20 percent chance that the bank will raise interest rates.
Evidence of the economy's deterioration sent the pound lower against the euro today. The currency fell to 79.59 pence from 79.57 pence yesterday.
House prices fell the most since 1992 in June, Nationwide said July 1. Unemployment may rise 58 percent to 1.3 million by the middle of 2010, the Centre for Economic and Social Inclusion, a government-supported research group, predicted this week.
Homebuilders Redrow Plc and Bovis Homes Group Plc today said they will cut their workforce by 40 percent as sales drop. Persimmon Plc said yesterday it eliminated 1,100 jobs after the housing slump lowered first-half sales by 34 percent payday loans online fast cash advance.
“The state of the housing market is of grave cause for concern,'' Harriet Harman, deputy leader of the ruling Labour Party, said in Parliament today. She said the government and the Bank of England will fight inflation even as economic conditions threaten to “get tougher.''
Policy Disagreement
Policy makers John Gieve, Timothy Besley, Paul Tucker and Kate Barker, who testified before a U.K. parliament committee on June 26 with Bank of England Governor Mervyn King, all said they considered advocating higher interest rates last month. The nine- member panel voted 8-1 to keep the main rate unchanged. David Blanchflower supported a reduction.
Inflation climbed to 3.3 percent in May, the fastest pace since at least 1997, and King said last month that the rate may exceed 4 percent later this year. In May, he predicted that the economy may see the “odd quarter or two'' of contraction as consumers pare spending.
Inflation has also accelerated because the weakness of the pound is driving up import prices. The pound fell 13 percent in the past year against a basket of the U.K.'s main trading partners. The goods trade gap stayed at 7.5 billion pounds ($15 billion) in May, the statistics office said today.
More than half the respondents in the Nationwide survey expect the economic outlook to worsen over the next six months, and around 70 percent predict their incomes will stay the same in that period, the report showed.
Consumers “are recognizing that the economy is weakening, and that's going to affect them,'' said Fionnuala Earley, chief economist at Nationwide, in an interview on Bloomberg Television. “The next move in rates will be down, but it will be much later this year or next year.''
Employers trimmed jobs from their payrolls in June for the sixth straight month, as the government’s closely watched report Thursday showed continued weakness in the labor market.
The Labor Department reported a net loss of 62,000 jobs in the month. That matched the job loss figure for May, which was revised higher from 49,000. Economists surveyed by Briefing.com had forecast a loss of 60,000 jobs.
The June number brought to 438,000 the number of jobs lost by the U.S. economy so far this year.
The unemployment rate stayed at 5.5%. Economists had forecast the rate would come in at 5.4% in the latest reading.
In a separate report, the department said initial claims for unemployment insurance rose 16,000 to 404,000 in the latest week. Economist Robert Brusca of FAO Economics said the reading over 400,000 is a "classic recession signal."
And the even more closely watched four-week moving average for initial claims neared that worrisome 400,000 benchmark, reaching 390,500 - the highest level since the four weeks after 2005’s Hurricane Katrina.
The four-week average hasn’t been at or above the 400,000 mark since 2003.
The job losses in the monthly report were concentrated in manufacturing and construction, two sectors that have been badly battered in the current economic downturn.
Manufacturing lost 33,000 jobs, even as the troubled auto and auto parts makers posted a modest gain. Construction lost 43,000, with about half of that coming from contractors and subcontractors in the home building segment of the market.
But the job losses were not limited to those areas. Retailers trimmed 7,500 jobs, while business and professional services cutting 51,000 jobs.
Mitigating the decline were government employers, who added 29,000 jobs, education and health services, which also added 29,000, and leisure and hospitality, which saw a 24,000-job increase.
Still the report showed a worrisome spreading of economic weakness, according to Lakshman Achuthan, managing director of the Economic Cycle Research Institute. He said this report is further proof that the nation has fallen into a recession.
"This is pretty much as expected, but expected isn’t good news these days," he said fast cash advance quick payday loans. "What it boils down to is a drip, drip, drip of ominous information."
The seasonally adjusted average hourly wage edged up 6 cents to $18.01, which was in line with forecasts, while the average hourly work week stayed unchanged.
Wages are not keeping pace with inflation, as the average wage is now up 3.4% over the last 12 months, less than the 4.5% rise in prices over the 12 months ended in May as reported by the government.
The presidential campaigns of John McCain and Barack Obama both issued statements saying that the current problems in the labor market justified immediate action from Congress, with each arguing he had the right solution for the economy.
"The American people cannot afford an economic agenda that will take our country in the wrong direction and cost jobs," said the statement from McCain, the presumptive Republican candidate. "At a time when our small businesses need support from Washington, we cannot raise taxes, increase regulation and isolate ourselves from foreign markets."
But Obama said McCain was endorsing economic policies of the Bush administration that had led to the current problems.
"The American people are paying the price for the failed economic policies of the past eight years, and we can’t afford four more years of more of the same," said his statement.
Neither candidate gave much in the way of specifics about the immediate action they are proposing.
McCain called for immediate tax relief for families, a plan to help those facing foreclosure, lower health care costs, investment in innovation, a move toward energy independence and opening more foreign markets to U.S. exports.
Obama proposed immediate relief with energy rebates for working families this summer, a fund to help families avoid foreclosure, extended benefits for the long-term jobless, and assistance to states that have been hard-hit by the economic downturn.
A key measure of the nation’s manufacturing activity rose unexpectedly in June, reaching a level that indicated expansion in the sector for the first time since January.
But economists saw negative signs in readings about new orders, employment and prices paid.
The Institute for Supply Management’s (ISM) manufacturing index rose to 50.2 in June, up from the May reading of 49.6. Economists were expecting a reading of 48.6, according to a consensus estimate compiled by Briefing.com.
The tipping point for the index is 50, with a reading below that reflecting contraction in the sector.
"The manufacturing sector showed a slight improvement in June as the PMI registered above 50% after four months of decline," said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee.
But the relatively modest change belies some of the more severe moves in the index’s components.
"When viewed from the manufacturer’s perspective, they are experiencing higher prices for their inputs while demand for their products is slowing," Ore added.
New orders The index showed that new orders for manufactured goods fell in June, the seventh consecutive month, to 49.6 from a reading of 49.7 in May.
"New orders is one of the key components of the index," said Keith Hembre, chief economist at First American Funds. "It gives a sense of underlying demand."
June’s reading for new orders puts the index in the bottom third of its range over the last decade, according to Bob Brusca, an economist at FAO Economics.
"That’s a pretty weak number," he said no fax payday loans free instant credit score estimator.
Price inflation The index’s measure of prices that manufacturers pay for materials rose to a reading of 91.5 in June, up 4.5% from May. This is the highest reading for the index since it registered 93.2 in July 1979.
Hembre said the prices paid number is very high and "indicative of a likely profit squeeze."
Higher input costs may also be impacting jobs in the sector.
"Labor is a bigger component of total costs and there may be an effort to squeeze some labor costs to offset non-labor costs," he said.
Employment The index’s employment measure fell in June to 43.7 from 45.5 the month before. It was the eighth month in a row that the measure has declined.
"That’s disturbing in light of the upcoming jobs report," Brusca said in reference to the Labor Department’s monthly report on nonfarm payrolls due Thursday.
"It looks like we’re beginning to get some indication that the job market is getting worse," he said.
Exports On the bright side, the index showed that exports in June remained in the range of expansion.
The ISM’s measure of exports in June slipped to 58.5 from 59.5 in May. That’s still a healthy reading and the export index has been growing for more than 5 years.
Imports, on the other hand, fell 3.5% to a reading of 46 from 49.5 the month before.
"The imports number suggests that domestic demand is still a problem," Brusca said.
Home sales on Oahu plunged by more than 30 percent in June and are off by more than 25 percent for the first half of 2008.
But sellers are hanging tough on asking prices. Even though single-family home prices fell 9 percent in June from a year ago, the median price for the month was $625,000, still a strong number.
Only 232 single-family homes sold last month on Oahu, a drop of more than 31 percent from June 2007 when 338 homes sold, according to the figures released Tuesday by the Honolulu Board of Realtors.
Sales of single-family homes for the first six months of the year were 1,413, down 26 percent from the first half of 2007.
Condominium sales fell 35 percent last month, to 355 units sold, down from 547 in June 2007.
The figures count only existing homes, not new construction.
The total number of units sold so far this year was 2,158, a 27.5 percent drop from the first six months of 2007.
"While median prices have remained rather stable, the number of sales continued to drop in June and the annual sales rate has fallen below 8,000 units," said Harvey Shapiro, the board's research economist.
Shapiro noted that the peak of the Oahu market was in 2005, with an annual sales rate of 13,000 payday loans get a free credit report. The low point occurred in the mid-1990s when sales fell below 4,000 units.
"The residential markets could see further slowing throughout the summer, but this reduction in demand may ease toward the end of this year," he said.
The median price of a single-family home a year ago was $685,000.
The median price of a condo was $327,500, down 2 percent from last year when it was $334,000.
"Sales demand in the Oahu housing market has been slowing, but median prices are remaining within the same range we've seen since 2005," said Dana Chandler, president of the Honolulu Board of Realtors. "The median price paid for a single-family home in June was 8.8 percent lower than a year ago, but remember that the price in June 2007, at $685,000, was the highest median ever achieved."
Inflation in Europe accelerated more than economists forecast, eroding consumers' spending power and adding to pressure on the European Central Bank to increase borrowing costs even as economic growth cools.
The inflation rate in the euro area rose to 4 percent this month, the highest in more than 16 years, from 3.7 percent in May, the European Union statistics office in Luxembourg said today. Economists had forecast a 3.9 percent rate for June, according to the median of 38 estimates in a Bloomberg survey.
Inflation-linked bonds fell on the data, signaling investors expect faster price increases over the long term even after ECB President Jean-Claude Trichet last week indicated his support for the so-called hawks on the governing council who argue rising inflation risks require higher interest rates. The price gains stemming from record oil and commodities are clouding the outlook for economic growth in the 15 nations that use the euro.
“It's a bad figure,'' EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in Brussels today. “I wouldn't be surprised if the inflation figure for 2008 turns out to be above our forecast'' of 3.2 percent.
Europe's inflation rate has crossed “a psychological threshold,'' said Gilles Moec, an economist at Bank of America in London. “This will make it easier for the hawks to argue a rate increase is needed.''
Breakeven Rate
Investors' expectations of future inflation, as gauged by the breakeven rate on five-year inflation-linked French government bonds, rose to a record 2.67 percent following today's report, up from 2.57 percent yesterday.
“A change in long-term expectations is bad news for the ECB,'' Moec said. “That's what they are really looking at.''
Crude-oil prices have doubled in the last 12 months and passed $143 a barrel for the first time today. Food commodities have also surged in the past year, boosting how much consumers are paying for staples such as bread and milk.
Inflation in Italy, the euro region's No. 3 economy, also accelerated more than economists expected in June to 4 percent, the fastest in over 11 years cashadvance pay day loans.
“The surge in inflation is the reason why we've seen the economy lurching downwards,'' said Ken Wattret, senior economist at BNP Paribas in London. “The pipeline pressures are increasing and the news on the wage front has been very alarming.''
European retail sales plunged in June with the Bloomberg purchasing managers index falling to 44 from 53.1 in May. Consumer confidence is at record lows in France and Spain, while Germany and Italy also saw sentiment decline.
Energy Costs
Ludwigshafen, Germany-based chemical maker BASF SE is raising prices by as much as 20 percent and Dow Chemical Co., the largest U.S. chemical maker, by up to 25 percent to make up for surging energy costs. Rio Tinto Group said last week it agreed to increase iron-ore contract prices with Baosteel Steel Corp., China's largest steelmaker, by 80 percent to 97 percent.
Workers are demanding higher wages to compensate for the rise in the cost of living, a phenomenon central bankers refer to as “second-round effects,'' which risks setting off an inflationary spiral. Ground staff at Cologne-based Deutsche Lufthansa AG are calling for a 9.8 percent pay increase.
“The projections we have under our eyes are making the working assumption that we don't have broad-based second-round effects,'' Trichet said June 5. At the same time, policy makers “noted that risks to price stability over the medium term have increased further.''
The ECB this month raised its forecast for euro-area inflation next year to around 2.4 percent from around 2.1 percent. Inflation has exceeded the central bank's 2 percent limit the past 10 months.
The pace of price increases “is of deep concern,'' the EU's Almunia said. “We have to take care to avoid creating an inflationary spiral.''
The figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on July 16.
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