Weekly Briefing: UK economy shrinks, mortgage rates are cut & BoE's interest rate holds

This week, we take a look at recent news on the UK economy – such as the latest GDP growth figures and the Bank of England’s (BoE) interest rate decision – and their immediate impacts on the housing market.

UK Economy

UK Economy Unexpectedly Shrinks In October

• The UK’s economy unexpectedly shrank in October, with a 0.3% decline following 0.2% growth in September.
• Economists had predicted a fall of just 0.1%, but the reality was steeper as the services, manufacturing and construction sectors all contracted.
• The Office for National Statistics (ONS) said that services had been "the biggest driver" of October's fall, with contraction seen in the IT, legal and film production sectors.
• The decline comes as household spending has been subdued after the BoE’s interest rate rises, which have been aiming to bring down inflation.
• Chancellor Jeremy Hunt commented on the figures, stating it was “inevitable” economic growth would be muted while "interest rates are doing their job to bring down inflation".

UK's Economic Growth

Source: BBC, ONS.

BoE Holds Interest Rates For The Third Time

• The BoE has kept interest rates at a 15-year high of 5.25% for the third consecutive time.
• The decision to maintain the interest rate was widely expected by markets, as GDP growth declined and inflation has been falling steadily, whilst the BoE has maintained that it’s still too early for any rate cuts. 
• Of the Monetary Policy Committee’s (MPC) nine members, six voted to hold interest rates and three voted to hike them to 5.5%.
• Reacting to the news on interest rates, a spokesperson for the Treasury said: “We have turned a corner in our fight against inflation and real wages are rising, but we must keep driving inflation out of the economy to reach our 2% target. By cutting taxes for hard working people and businesses, and helping people into work, we are forecast to deliver the largest boost to potential GDP on record.”
  
  

Property

Mortgage Lenders Cut Interest Rates

• A number of high-street mortgage lenders have recently cut interest rates, with HSBC becoming the latest to do so after Wednesday’s news of a larger than expected fall in GDP growth. 
• HSBC announced that rates would be slashed on its two and five-year fixed-rate products for borrowers with deposits of 25%, 30% and 40%.
• Nationwide currently offers the market-leading five-year fixed rate of 4.29% for people with a 40% deposit. 
• Rhys Schofield, Brand Director at Peak Mortgages and Protection, said: “Bad news on GDP often means good news for borrowers as it puts pressure on the Bank to reduce rates and protect the wider economy.”
• Falling mortgage rates suggests confidence from lenders that the next move for the BoE’s interest rates will be down.
  
  

A Final Note

Whilst the initial news of economic slowdown and maintained interest rates might seem a gloomy prospect for investors, with UK VC investment still dominating Europe in 2023 (raising $12 billion this year – 33% more than second place Germany), the horizon for 2024 continues to look promising.

At GCV, we remain committed to providing the latest insights into the investment and wider economic landscape in order to support investors in making well-informed decision when choosing where to allocate their capital.

If you would like to find out more about a number of tax-efficient investment strategies available to UK investors, discover our range of downloadable resources here.