In This Article:
Rachel Reeves is on the brink of breaking her fiscal rules and being forced into another tax raid, economists have warned as borrowing costs surged to the highest level since 1998.
The Chancellor has a cushion of just £1bn left before she faces a “nasty choice” between more tax rises, spending cuts, and breaking her main fiscal rule to balance the books by the end of this parliament, according to Capital Economics.
In research published on Tuesday afternoon, it said that the jump in borrowing costs had wiped out £8.9bn of the Chancellor’s £9.9bn headroom to meet her fiscal rule of a balanced budget by 2029/30.
Economists Ruth Gregory and Alex Kerr said: “There is a significant chance that the Office for Budget Responsibility (OBR) will judge that the Chancellor, Rachel Reeves, is on course to miss her main fiscal rule when it revises its forecasts on March 26.
“To maintain fiscal credibility, this may mean that Reeves is forced to tighten fiscal policy further.”
They added: “In recent years, the fiscal headroom has never been this low. It would only take a further 0.06 percentage point increase in market interest rate expectations and 20-year gilt yields to wipe it out altogether.”
Capital Economics said that this is before the OBR factors in the recent weakness in economic activity.
It said: “Reeves will be in trouble if the OBR decides that some of the weak GDP growth in Q3 and Q4 of last year reflects a permanent, rather than a temporary, loss of output”, the economists said. It would take just a 0.1pc downward revision to the OBR’s forecast in 2029/30 to wipe out that £1.0bn of headroom.
“This means Reeves could soon face a nasty choice of breaking her fiscal rules or announcing more tax rises and/or spending restraint at a time when the economy is already weak.
“We suspect she would choose the latter, perhaps by reducing spending relative to existing plans in 2028/29 and 2029/30. That way, she could avoid worsening the economy’s near-term prospects and avoid politically unpalatable tax rises. And she may hope that by the time the spending squeeze arrived, things had improved such that she would not actually have to implement it.”
The economists’ warning came as the the yield on 30-year UK bonds - the return the Government promises to buyers of its debt - rose to 5.22pc today for the first time in more than a quarter of a century.
A Treasury spokesman said: “We are not going to pre-empt the OBR’s forecast; however, no one should be under any doubt of the Chancellor’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.
“The Chancellor has been clear that she would not repeat the likes of October Budget and is now focused on rooting out waste in public spending through the Spending Review and growing the economy.”
Read the latest updates below.
06:24 PM GMT
Signing off...
Thanks for joining us today as we’ve covered the latest on the UK economy, including soaring government borrowing costs.
You can keep up to date with all the latest business and economics news here.
06:08 PM GMT
Sterling dips in uncertain day of trading
Sterling fell this afternoon after strong gains against the dollar in the morning and yesterday.
The pound was down 0.1pc today at $1.250 but up 0.1pc at 1.206 euros.
The pound had been boosted by a Washington Post report yesterday that Donald Trump’s plans for tariffs might not be as severe as feared, applying tariffs only to critical imports.
Mr Trump, who has rejected the suggestion, had vowed to impose tariffs of 10pc on global imports into the US along with a 60pc tariff on Chinese goods, increasing expectations for higher inflation and supporting the dollar.
Jane Foley, senior foreign exchange strategist at Rabobank, told Reuters that the market is looking for more clarity on Britain’s direction on growth and inflation.
05:45 PM GMT
Government says fiscal rules are ‘non-negotiable’
The Treasury has told The Telegraph that it is focused on cutting waste and that it remains committed to its fiscal rules.
A spokesman said: “We are not going to pre-empt the OBR’s forecast; however, no one should be under any doubt of the Chancellor’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.
“The Chancellor has been clear that she would not repeat the likes of October Budget and is now focused on rooting out waste in public spending through the Spending Review and growing the economy.”
05:17 PM GMT
FTSE drops as traders mull bleak economy
The FTSE struggled today, with the globally-focused FTSE 100 dipping 0.1pc, while the domestically focused FTSE 250 felly by 1.3pc.
British government bond yields have risen in recent weeks as most investors expect the Bank of England to cut interest rates by only about half a percentage point this year with inflation likely to hover above the central bank’s 2pc target.
The 30-year yield peaked at 5.252pc on Tuesday, the highest since August 1998, adding to the problems facing finance minister Rachel Reeves, who plans big borrowing to fund higher public investment and spending.
Financial stocks were the main drags on the FTSE 100, with heavyweight HSBC down 1.1pc and NatWest falling 3.5pc.
Adding to the gloom, data showed activity in Britain’s construction industry grew at the slowest pace in six months in December and British house prices dropped unexpectedly last month for the first time since March.
04:47 PM GMT
Reeves ‘risks breaking her own fiscal rules’ after borrowing costs surge
Rachel Reeves is on the brink of breaking her fiscal rules and being forced into another tax raid, economists have warned as borrowing costs surged to a 30-year high.
The Chancellor has a cushion of just £1bn left before she faces a “nasty choice” between more tax rises, spending cuts, and breaking her main fiscal rule to balance the books by the end of this parliament, according to Capital Economics.
In research published on Tuesday afternoon, it said that the jump in borrowing costs had wiped out £8.9bn of the Chancellor’s £9.9bn headroom to meet her fiscal rule of a balanced budget by 2029/30.
Economists Ruth Gregory and Alex Kerr said: “There is a significant chance that the Office for Budget Responsibility (OBR) will judge that the Chancellor, Rachel Reeves, is on course to miss her main fiscal rule when it revises its forecasts on March 26.
“To maintain fiscal credibility, this may mean that Reeves is forced to tighten fiscal policy further.”
They added: “In recent years, the fiscal headroom has never been this low. It would only take a further 0.06 percentage point increase in market interest rate expectations and 20-year gilt yields to wipe it out altogether.”
Capital Economics said that this is before the OBR factors in the recent weakness in economic activity.
04:28 PM GMT
Bond investors on a ‘bit of a buyer’s strike’ as UK debt surges
Investors are being put off buying UK government bonds as result of poor economic data and a high volume of gilts being sold, a City investor has said.
Craig Inches, head of rates and cash at Royal London Asset Management, told the FT: “You’ve probably got a bit of a buyer’s strike going on at the moment”.
The yield on 30-year gilts - the return on Government bonds - increased on Tuesday by four basis points to 5.244pc, surpassing the spike seen in 2023.
On Tuesday, the UK’s Debt Management Office (DMO) sold £2.25bn on 30-year notes, with a yield of 5.19pc.
It is also expected to sell a further £4.25bn of notes on Wednesday, while the Bank of England is also reducing its balance sheet through the sale of some securities as part of its quantitative tightening process next week.
Last year, the DMO said it expected to sell about £296.9bn of notes over the 2024-25 fiscal year.
03:47 PM GMT
Bond vigilantes are ‘watching from the sidelines’, warns broker
The surge in long-term borrowing costs suggest that markets are worried about the sheer scale of budget deficits, a leading broker has said.
Kathleen Brooks, research director at XTB, said the jump in UK and US bond yields comes despite the market expecting significant rate cuts in the coming year.
She said: “Yields in France, the UK and the US have been moving at a faster pace than German and Spanish yields.
“This is significant since the UK, the US and France have far higher budget deficits than Germany and Spain, which could be why long-term bonds are selling off. Investors may be using the bond market to express displeasure at the high levels of government debt.
“This could force a rethink from governments and ultimately a scaling back of public spending or tax increases that could hinder growth.”
She added: “The risk is that public finance data in the coming months will be scrutinised by investors and if they don’t like what they see then it may trigger a bond market sell off.
“Bond vigilantes are not stalking the market yet, but they are watching from the sidelines.”
03:36 PM GMT
Mortgage costs to be higher for longer as house price boom snuffed out
Rachel Reeves’ £40bn tax raid on Oct 30 is to blame for the downward pressure on house prices at the end of last year, mortgage brokers have said. Mattie Brignal reports:
David Hollingworth, of brokerage London and Country Mortgages, said the Budget had increased uncertainty in the market.
03:30 PM GMT
US stocks fall amid rising bond yields
Stock markets on Wall Street were mixed in early trading amid pressure from rising borrowing costs.
The Dow Jones Industrial Average was up 0.2pc to 42,778.11 while the broad-based S&P 500 was down 0.2pc to 5,963.78.
The tech-heavy Nasdaq Composite dropped 0.7pc to 19,720.74 as the US 10-year Treasury bond yield rose four basis points to 4.67pc.
Tech stocks had surged on Monday as Nvidia - which drove a rally in the sector last year thanks to its AI chips - provided a positive outlook.
Its shares popped more than 3.4pc to close at a new record, giving the company a market valuation of more than $3.6 trillion. Nvidia shares were down 3.2pc today.
Briefing.com analyst Patrick O’Hare said: “What everyone is waiting to see is if it will be back to a bull market or back to a market that is inclined to do some backing up as rates move up.”
With that, I’ll duck out and hand you over to Alex Singleton, who will keep you updated from here.
03:07 PM GMT
Readers: Maybe it’s time to cut spending as debt surges
The Government “doesn’t know what they’re doing to the economy”, Telegraph readers have warned after long-term borrowing costs surged to their highest level since 1998.
Here is a selection of views from the comments section below and you can join the debate here:
02:41 PM GMT
US bond market risks ‘Truss moment’, warns investment giant
The cost of US borrowing is rising so fast that the American debt market is at risk of Liz Truss-style turmoil, an investment giant has warned.
Apollo Global Management has raised concerns ahead of the inauguration of Donald Trump, who is expected to increase the American debt burden with tax cuts and inflationary tariffs when he returns to the White House.
Money markets expect the US Federal Reserve will be forced to keep interest rates higher for longer to battle price pressures, forcing debt costs higher.
It comes as the US 10-year Treasury bond yield has risen to 4.63pc, which is its highest since May.
Apollo’s chief economist Torsten Slok warned the US faces a “potential Liz Truss moment,” referring to the bond market sell-off after her mini-Budget, which eventually led to the end of her brief time as prime minister.
Mr Slok told Bloomberg Television: “80pc of the increase in long rates since September has potentially been driven by worries about fiscal policy.
“Higher for longer has a number of consequences that brings back memories of what we saw in 2022.”
02:11 PM GMT
UK long-term debt auction at highest yield since 1998
The sale of long-term UK bonds today fetched the highest yield since 1998.
There are so many figures around today, so here is a quick recap.
The UK Debt Management Office sold £2.25bn of 30-year gilts to investors today at an average yield of 5.198pc.
This was the highest yield for a 30-year bond since the DMO sold one at 5.790pc at its first auction in May 1998.
On the secondary debt market, trading between investors after the auction saw the 30-year yield peak at 5.22pc, the highest since August 1998.
01:50 PM GMT
Trump to blame for surging borrowing costs, says fund manager
Donald Trump is the cause of the surge in borrowing costs which has taken UK 30-year bond yields to their highest point since 1998, according to a wealth manager.
Richard Carter of Quilter Cheviot said: “Gilt yields have surged sharply in recent weeks, which is bad news for the government as it stokes fears about the state of public finances.
“This spike can be partly attributed to Donald Trump’s victory in the US presidential election, as his policies on tax and immigration are expected to drive inflation, leading to rising yields in the US and, consequently, in the UK as well.
“The Bank of England remains cautious about slashing interest rates too aggressively, and the tepid demand from investors at the latest gilt sale underscores the uncertainty in the market.
“The short-term outlook is particularly unpredictable as we approach Trump’s inauguration, adding to the volatility.”
01:22 PM GMT
UK to auction another £4.25bn of debt
The UK’s Debt Management Office (DMO), which handles auctions of government bonds, is scheduled to sell a further £4.25bn of notes on Wednesday.
Investors will keep an eye on yields as the DMO said it expected to sell about £297bn of notes over the 2024-25 fiscal year.
The pressure on yields comes as the Bank of England is also reducing its balance sheet through the sale of some securities as part of its quantitative tightening process next week.
12:59 PM GMT
Reeves’s tax raid has damaged UK growth, says Next
Rachel Reeves’s record tax raid will slam the brakes on UK spending, high street giant Next has said, as higher prices and job costs weigh on economic growth.
The retailer is expecting its UK sales growth to slow dramatically, down from 2.5pc in its latest financial year to Dec 28 to an estimated 1.4pc in 2025.
Next said the slowdown was likely “as employer tax increases and their potential impact on prices and employment begin to filter through into the economy”.
Read how its warning comes amid growing concern over the impact of the Chancellor’s tax raid.
12:30 PM GMT
Eurozone borrowing costs near two-month high
The UK is not the only market facing rising borrowing costs.
Eurozone bond yields hit their highest level in about two months after inflation picked up pace in December.
The consumer prices index for the single-currency area rose from 2.2pc in November to 2.4pc last month, according to Eurostat.
Germany’s 10-year bond yield, the benchmark for the eurozone, was up one basis point to 2.46pc, hovering close to its highest in two months.
However, markets still expect the European Central Bank (ECB) to cut interest rates four times this year in the face of a weakening economy.
Commerzbank economist Vincent Stamer said: “A fall in inflation below the ECB target appears unlikely in the first half of the year.
“We do expect the ECB to make four more interest rate cuts this year. But the monetary authorities could act more cautiously in the future despite the weak economy in the eurozone.”
12:08 PM GMT
Pound rises amid hopes of softer Trump tariffs
Although borrowing costs are rising, there is small relief for the Government from the latest strengthening of the pound.
Sterling was up 0.2pc against the dollar at $1.254, having earlier reached $1.256, its highest level since New Year’s Eve.
The pound has been boosted by reported that Donald Trump’s plans for tariffs will not be as severe as feared, only applying to critical imports.
Before that, the pound had dropped to $1.235 last week, its lowest level since April, as the dollar rallied on expectations for strong US growth and increased tariffs.
Sterling was down 0.1pc against the euro, with is worth 83p.
11:47 AM GMT
Starmer accused of ‘absence of economic input’ in spending review
The former head of the civil service has accused Sir Keir Starmer of not knowing how his Government’s spending review works as he struggles to improve efficiency and boost economic growth.
Gus O’Donnell, the cross-bench peer who served as Cabinet Secretary from 2005 to 2011, said there was an “absence of economic input from Number 10”.
He suggested the Prime Minister understands the criminal justice system but lacked knowledge on the economy, which was “really crucial” as the Treasury conducts its spending review, which will set budgets for government departments for the coming years.
Lord O’Donnell told a Resolution Foundation event: “The absence of economic input from Number 10 is really crucial. That’s where we’re falling down at the moment.”
He said: “We really need Number 10 to understand the way in which spending reviews operate and the political challenges that’s going to make.
“Because what will happen in this spending review is there will be a few winners and a large number of losers and those secretaries of state will want to go to Number 10 and say ‘this is outrageous, this shouldn’t happen. We need more money. We can’t meet your missions.’
“Number 10 needs to understand how the spending review process works.”
11:33 AM GMT
Benchmark UK bond yield hits one-year high
The yield on the government’s benchmark 10-year bond has also climbed today, hitting its highest point since October 2023.
The coupon on 10-year gilts hit 4.65pc as a government auction attracted the lowest demand in more than a year.
11:16 AM GMT
UK bond demand lowest in over a year
Demand for a sale of government bonds today was its lowest in more than a year, ramping up pressure on Rachel Reeves as the government floods the market with fresh UK debt.
The yield on 30-year UK gilts - the return the Government promises to buyers of its debt - rose to 5.22pc today as the UK Debt Management Office auctioned another £2.25bn of bonds today.
The 30-year bonds were sold with a yield of 5.2pc, making Ms Reeves the first chancellor to oversee a bond auction over 5pc since Gordon Brown.
The Government plans to sell £297bn of bonds this fiscal year - the second highest on record - to help fund its spending plans.
However, demand for today’s bond sale was the lowest since December 2023, indicating that yields may yet move higher.
Bond yields rise as the price is lowered to attract bidders.
10:56 AM GMT
Starmer must show he’ll make ‘politically difficult’ decisions for growth
Sir Keir Starmer is yet to show that he is willing to take the “politically incredibly difficult” decisions needed to secure growth needed for the UK economy, according to the former head of the civil service.
Gus O’Donnell, the cross-bench peer who served as Cabinet Secretary under Sir Tony Blair, Gordon Brown and David Cameron, said the Government needs “to do a lot more” if it seriously wants to improve growth.
He said the Government can “forget” its original mission on growth was the fastest growing economy G7 country and would be “the worst government in living memory” if it failed to improve living standards.
Speaking at an event held by the Resolution Foundation, he said: “If you want proper growth - serious growth - you need to do a lot more.
“The reason none of these things have been done is because they are politically incredibly difficult.
“In the end, politicians go ‘yeah, right, thanks Gus, that’s why you’re a civil servant. So it doesn’t happen.
“As yet, I don’t see anything that tells me that they are prepared to actually do the really tough political things.
“So when the clean energy thing requires you to increase number of pylons through a marginal constituency that you won for the first time as Labour and the local MP says I can’t possibly support this, and they say ‘sorry, it really matters for growth’.
“Then, that sort of thing, we’ll see if that happens. As yet I haven’t seen it.”
10:41 AM GMT
Third of young people ‘worried about finances’
More than a third (35pc) of young adults are concerned about their finances on a daily basis, a survey has indicated.
Research among 2,000 18 to 21-year-olds found that 31pc look to social media influencers for advice, with 25pc of those relying on TikTok.
The survey, commissioned by Santander UK, also found that only one in seven (13pc) young adults feel the financial lessons they received in school are applicable to their personal finances.
Four-fifths (79pc) have never created a budget, 76pc have never paid a bill, and 77pc have not set aside funds for unexpected expenses.
William Vereker, chairman of Santander UK, which is planning to launch a financial education programme in 2025, said: “Young people’s understanding and effective management of money is essential in their own lives, but also for wider society and economic growth.
“Empowering them with the knowledge and skills to develop a healthy, resilient relationship with money directly impacts the economic stability of the country, by reducing individual debt, instilling investment habits and encouraging entrepreneurship.”
10:15 AM GMT
House building targets ‘impracticable and undeliverable’
The slump in house building activity last month shows the Government’s targets for home construction are “impracticable and undeliverable”, according to economists.
Angela Rayner, the Housing Secretary and Deputy Prime Minister, has set out a target of building 1.5m homes by the end of this Parliament.
However, house building activity fell for the third month in a row in December, the latest PMI data show.
Kelly Boorman of RSM UK said: “The fluctuation in housing activity since the government introduced mandatory housing targets also indicates these targets are impracticable and undeliverable.
“The current planning system is not fit for purpose to deliver increased volumes, with workforce constraints adding further tension.
“There’s also the issue of changes to employment taxes announced in the Autumn Budget, with construction businesses starting to realise the impact of surging costs within tight operational margins.”
09:53 AM GMT
House building slumps for third straight month
Britain’s construction sector last month expanded at the slowest pace since June as house builders continued to struggle, according to an influential survey.
House building activity has decreased for three consecutive months, according to the S&P Global UK Construction purchasing managers’ index (PMI).
Bosses said activity had been hit by subdued demand, as well as elevated borrowing costs and weak consumer confidence.
Overall, the UK construction sector delivered a reading of 53.3 in December, which was the lowest for six months, although it still indicated an expansion for the sector.
Tim Moore, economics director at S&P Global Market Intelligence, said: “December data highlighted a loss of momentum for construction output growth, with all three main categories of activity posting weaker performances than in the previous month.”
He added: “Although confidence recovered after a post-Budget slump during November, it was still much weaker than in the first half of 2024. Many firms reported worries about cutbacks to capital spending and gloomy projections for the UK economy.”
09:31 AM GMT
Borrowing costs surge to highest level since 1998
The cost of long-term government borrowing has surged to its highest level since 1998 as interest rates are expected to fall at a slower pace this year.
The yield on 30-year UK bonds - known as gilts - has risen above 5.2pc today for the first time in more than a quarter of a century.
It comes as the Bank of England is only expected to cut rates twice this year in response to persistent inflation, which rose for the second month in a row to 2.6pc in November.
Interest rates were cut only twice last year, compared to expectations at the start of 2024 of as many as six reductions.
This has put pressure on mortgage rates, which have risen to an average of 5.47pc today for a two-year fixed deal, making it more difficult for buyers to afford a home.
09:12 AM GMT
House prices ‘to bounce in January’
Jonathan Hopper, chief executive of Garrington Property Finders, said:
December’s dip in house prices is likely to be little more than a pause for breath before the January bounce.
08:54 AM GMT
Food price inflation hits nine-month high
House prices fell in December as household spending on groceries hit a record high this Christmas - despite food price inflation hitting a nine-month high.
Shoppers spend £460 on average last month, according to figures from Kantar, up 2.1pc on the same period last year.
This was despite grocery inflation rising to 3.7pc - its fastest pace since March.
The average household made nearly 17 separate shopping trips this December, delivering the busiest month for the retailers since the pre-lockdown rush in March 2020.
Fraser McKevitt, head of retail and consumer insight at Kantar, said:
It was a solid Christmas at the supermarkets with sales surpassing £13bn during the four weeks of December for the first time ever, showing people were clearly in the mood to celebrate and spend.
08:40 AM GMT
House prices rise fastest in Northern Ireland
Northern Ireland enjoyed the strongest growth in house prices across the UK last year.
Property values rose by 7.4pc in 2024, making the average home worth £205,895.
House prices in Wales were up 4.6pc last year, with properties now costing an average of £226,646.
Scotland saw a lower rise in house prices compared to the rest of the UK, with properties worth just 2.4pc more to £209,959.
In England, the strongest growth in house prices was in the North West, up 5.3pc to an average of £238,832.
London retains the highest average house price in the UK, rising 3.3pc in 2024 to £547,614.
08:18 AM GMT
First-time buyers race to beat stamp duty tax grab
Changes to stamp duty from April have given prospective first-time buyers more motivation to get on the housing ladder, according to Halifax.
The “nil rate” band for first-time buyers will shrink from £425,000 to £300,000, while for house movers this will drop from £250,000 to £125,000.
Stamp duty applies in England and Northern Ireland.
Amanda Bryden, head of mortgages at Halifax, said: “Impending changes to stamp duty thresholds have also given prospective first-time buyers even greater motivation to get on the housing ladder and bring any home-buying plans forward.
“Together, these elements meant mortgage demand picked up, hitting the highest level in over two years and back to levels seen pre-pandemic.”
She added: “Providing employment conditions don’t deteriorate markedly from a more recent softening, buyer demand should hold up relatively well and, taking all this into account, we’re continuing to anticipate modest house price growth this year.”
08:07 AM GMT
UK markets fall as house prices decline
Stock markets in London have begun the day lower following the figures showing a decline in house prices at the end of last year.
The FTSE 100 was down 0.6pc to 8,204.58 while the midcap FTSE 250 slipped 0.3pc to 20,556.12.
08:03 AM GMT
House prices fall amid rising mortgage rates
The fall in house prices comes as mortgage borrowing costs have crept up since the Budget.
The average two-year fixed rate mortgage stood at 5.39pc the day after the Chancellor announced her near record spending plans - but has risen to 5.47pc as of Monday. Five-year rates have risen on average from 5.09pc to 5.24pc over that time.
Tom Bill, head of UK residential research at Knight Frank, said: “The current rate of house price growth will come under more pressure as higher borrowing costs triggered by the Budget start to bite.
“We recently revised down our UK house price forecast for 2025 to 2.5pc to reflect the tougher lending landscape and the fact economic growth is struggling to gain momentum.”
07:51 AM GMT
Next to raise prices in face of Reeves’s tax raid
Next said it plans to raise prices to deal with a £67m increase in the cost of wages as a result of Rachel Reeves’s tax raid on employers in the Budget.
The retail bellwether has cautioned over slowing sales growth in 2025 and said it will hike prices to cover about £13m of the impact of the Chancellor’s plans to increase employer National Insurance contributions and the minimum wage from April.
It said it will need to push through an “unwelcome” 1pc rise in prices as part of efforts to offset the hit.
Next also warned that sales growth will pull back sharply over the year ahead “as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy”.
It came as the company reported a better than expected 5.7pc rise in underlying full-price sales for its fourth quarter so far, and upped its full-year pre-tax profit outlook once again, pencilling in a 10pc jump to £1bn.
But over the new financial year to January 2026, it expects sales growth to slow to 3.5pc and for group profits to increase by a more muted 3.6pc to £1.1bn.
07:40 AM GMT
House price growth at risk if ‘weakness in the economy persists’
House prices could rise by less than expected this year if Britain’s economy continues to grow show lacklustre growth, economists have warned.
The Office for National Statistics revealed last month that Britain is at risk of recession after growth was downgraded from 0.1pc to 0pc for the third quarter, while GDP contracted by 0.1pc in October.
Property values fell for the first time since March during December, the Halifax house price index showed.
Ashley Webb of Capital Economics said the 0.2pc decline last month “suggests that recent rises in mortgage rates may have started to weigh on the housing market at the end of last year a bit more than previously thought”.
He expects mortgage rates will fall further than most expect to 4pc, meaning house prices will “rise by a healthy 3.5pc in 2025”, compared to most forecasts of 2.5pc to 3pc.
He added: “That said, if the recent weakness in the economy persists and GDP doesn’t grow in 2025 by as much as we expect or mortgage rates don’t fall as fast, house prices may not grow by as much as we anticipate.”
07:29 AM GMT
Houses selling for asking price ‘nearly doubled’, say estate agents
Estate agents appeared to be caught off guard by the Halifax figures showing house prices fell slightly in December.
Nathan Emerson, chief executive of estate agent group Propertymark, said: “Our member agents recently reported that the overall number of properties achieving their asking prices has nearly doubled from 6pc to 11pc showing a real desire and confidence from prospective and current homeowners to approach the buying and selling process.
“As people start to feel more settled within their financial position, and with an expected rush as many people across England and Northern Ireland provision themselves to navigate Stamp Duty rises from April, we expect to see an upbeat and confident start to the year.”
Matt Thompson of agent Chestertons added: “December 2024 was one of the busiest Decembers in years in terms of buyer demand.
“This was driven by first-time buyers who were keen to get on the property ladder before this year’s changes to Stamp Duty but also by second-steppers, including young families, wanting to upsize.”
07:20 AM GMT
House prices fall for first time in nine months
House prices fell for the first time in nine months as many buyers struggle to afford a mortgage in the face of higher interest rates, a closely watched survey showed.
Property values slipped by 0.2pc in December, meaning the typical home increased in value by 3.3pc during 2024, according to the Halifax house price index.
The average home was worth £297,166 by the end of the year, down slightly from the record high hit in November.
It comes as traders reduced bets on the Bank of England cutting interest rates this year, amid signs that inflation remains persistent in Britain.
Money markets indicate there will be just two quarter point falls this year to 4.25pc, pushing mortgage rates higher.
Amanda Bryden of Halifax said: “The housing market was broadly steady at the start of 2024, with house price growth taking off from the summer onwards.
“In the latter half of the year, house prices grew in response to the falls in mortgage rates, alongside income growth, both leading to financial pressures somewhat easing for buyers.”
She said the housing market has been supported in recent months by falling mortgage rates, income growth and the announcement on upcoming Stamp Duty policy changes.
However she warned that mortgage affordability “will remain a challenge for many, especially as the Bank Rate is likely to come down more slowly than previously predicted”.
07:16 AM GMT
Good morning
Thanks for joining me. House prices ended 2024 with their first monthly decline in nine months, according to the Halifax house price index.
The closely watched survey showed property values fell 0.2pc in December but grew by 3.3pc overall last year, making the average home worth £297,166, just below a record high.
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What happened overnight
Asian shares mostly rose, deriving optimism from rising technology stocks on Wall Street.
Japan’s benchmark Nikkei 225 jumped 2.2pc to 40,164.53. Australia’s S&P/ASX 200 edged up 0.3pc to 8,285.10. South Korea’s Kospi added 0.4pc to 2,497.75.
Hong Kong’s Hang Seng index slid 1.9pc to 19,316.53 as shares in technology and games company Tencent plunged 7.8pc after it was hit by US sanctions.
The Shanghai Composite edged 0.1pc higher to 3,209.94.
Nippon Steel, whose attempt to take over US Steel is being blocked by the Biden administration, slid 1.5pc in Tokyo trading, shortly after its chief executive vowed to keep pushing the deal.
US Steel climbed 8.1pc overnight after it and Japan’s Nippon Steel filed a federal lawsuit challenging President Joe Biden’s decision to block a proposed nearly $15bn (£12bn) deal for Nippon to buy its Pittsburgh-based rival.
The suit, filed in the US Court of Appeals for the District of Columbia, alleges it was a political decision. Japanese leaders have also said there is scant evidence the merger poses a security concern for America.
On Wall Street, the Dow Jones Industrial Average fell 0.1pc to 42,706.56, the S&P 500 rose 0.6pc to 5,975.38 and the Nasdaq Composite rose 1.2pc to 19,864.98.
In the bond market, the yield on benchmark 10-year US Treasury notes reached 4.636pc last night, up from 4.618pc late on Friday.