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UK House Prices Recover Brexit Losses but Future Looks Mixed

UK House Prices Recover Brexit Losses but Future Looks Mixed

Nick Cawley, Senior Strategist


Talking Points

- UK house prices recover aided by ultra-low rates.

- Sterling little changed as US election dominates currency markets.

- Bank of England talk suggests that low rates have hit a nadir.

UK house prices in the three months to October were +5.2% higher than in the same quarter of 2015, according to the latest Halifax house price index. Prices were also +1.4% higher on the month, sharply higher than consensus expectations of +0.2%.

According to Halifax data, UK house prices have now fully recovered their post-Brexit losses and are +0.3% above their June high. The UK lender warned however that further growth may prove difficult as inflation and rate expectations rise. In addition, the current confusion over the UK’s plans to leave the European Union may hold back further price increase. Last week Britain's High Court ruled that Parliament must vote on the triggering of Article 50, the process that begins Britain's exit from the EU. This may now cause a delay to Prime Minister Theresa May’s original plan to trigger Article 50 by the end of March 2017.

Martin Ellis, Halifax housing economist, commented: “Annual house price growth has nearly halved from a peak of +10.0% in March this year, but remains robust at +5.2%. This expected slowdown appears to have been largely due to mounting affordability pressures, which have increasingly constrained housing demand. Whilst house price growth may ease further in the coming months, very low mortgage rates and a shortage of properties available for sale should help support price levels.”

Last week the Bank of England warned the markets that inflation was on the up and that the next move in UK interest rates could go either way. The near -18% slump in the value of the British Pound after the UK decided to leave the EU has pushed UK inflation expectations higher as import costs ramp up. At last week’s Quarterly Inflation Report, BOE Governor Mark Carney said that interest rates could “respond in either direction” and that the BOE’s MPC would closely monitor, and react if needed, to rising inflation expectations.

Chart 1: GBP/USD 1-minute Chart (November 7 Intraday)

The British Pound ignored the latest news as traders wait for the outcome of this week’s US presidential election. See the DailyFX Weekly Trading Forecasts for our expectations of how the US elections will impact FX markets.

Read more: British Pound Shows Signs of Life - Watch for Further Volatility

--- Written by Nick Cawley, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.