EU inflation on the rise. Price rises continue to pressure Europe, while falling home prices and mortgages are pushing the UK towards a recession. Figures out overnight show European inflation topped the 4% mark for the first time in 16 years in July, to go with the 5% rate in the US and around 3.8%in Britain. Oil prices reached record levels earlier in July and the inflation rate rose to 4.1%, the highest since April 1992 from the 4.0% in June, according to official European Union figures.
Unemployment remained steady at 7.3% in June for the countries in the eurozone, but the EU statistics office revised May’s unemployment rate up to 7.3 % from 7.2%, which was the first increase in the EU jobless rate for three years. The increase follows the rise in the European Central Bank’s key interest rate to 4.25% in early July. The ECB has an inflation target of 2%. — Glenn Dyer
UK plunge continues. In the UK, house prices fell sharply in July as the economy moved closer to tipping over into recession; and consumer confidence fell to its lowest level since a key survey was 34 years ago. The Bank of England said earlier this week that the number of new home mortgages in June were 36,000, sharply down from 64,000 in May, and more than 66% down from the 114,000 mortgages in June 2007. Economists said the fall in June was the biggest for 20 years and followed a sharp reduction in bank lending for all forms of residential mortgages, especially the buy to let properties.
And overnight Nationwide, Britain’s fourth largest mortgage lender and the keeper of a respected home price statistical report, said the average price of a UK home tumbled 8.1% in July from July last year to 169,316 pounds ($A353,800). Nationwide said that was the biggest fall since 1991, when the UK was last in a recession. Home prices are now their lowest since August 2006. That’s wiped out all the price gains from the strongest 12 months of British home price inflation.
From June to July, house prices fell 1.7%, according to Nationwide’s report, the ninth monthly fall in a row. Ratings agency Standard & Poor’s warned this week that around 1.7 million UK homeowners could experience negative equity in the coming year (something that has happened twice in the past 30 years in the UK) as the value of their homes falls below the amount they owe on their mortgage. Pollster group, GfK NOP said consumer confidence dropped 5 points to minus 39, the lowest since the data began in 1974.
But despite the drop in demand for funds, UK mortgage rates are currently running around 6.6%, close to the highest level since early 2000. Some lenders have trimmed some of their rates, but not by enough to make a significant difference. And a report to the UK Government this week from a former senior bank executive was gloomy: it said that there wasn’t sight of a housing recovery any time soon. in Britain. the report had been commissioned by the Brown administration looking for ways to revitalise the sliding home lending sector.
UK housing woes hit the banks. That slump in UK housing is having an impact on the country’s banks, with the big HBOS (which owns Bankwest in Australia) has warned that profits are under pressure, joining rival LloydsTSB in issuing a cautious outlook for the rest of the financial year.
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But the bank says that while it expects 2008 growth to be positive, the risks are there for next year from the slumping economy and housing sectors. HBOS said its so-called statutory profits fell 72% from £2.997 billion (over $A6 billion) to £848 million (over $A1.7 billion) because of the impact of asset write-downs. Underlying profits, before the fair value adjustments on subprime-related investments, fell by a more sedate 14% to £2.546 billion, or more than $A5 billion. HBOS said it can see no let up in the liquidity crunch in financial markets for another year.
The bank owns Halifax and the Bank of Scotland and is Britain’s largest mortgage lender. It was forced to raise £4 billion (just over $A8 billion) from shareholders and other investors to restock its capital base after write-downs caused by the subprime crisis. The bank said impaired loan losses rose by 36% to £1.31billion (more than $A2.6 billion) and the bank said that impaired loan losses on its housing loans were £213 million (over $430 million) in the first half of 2008, 500% more than the £40 million ($A84 million) in the second half of last year. the bank slashed interim dividend to 6.1p ( to be paid in shares), down from 16.6p for the first half of 2007
Unilever profits head south. In Europe, the world’s second largest consumer product company, Unilever saw its shares fall the most they have in five years after it surprised with a 20% drop in June quarter profits. Net profit fell to 909 million euros ($US1.4 billion) from 1.14 billion euros a year earlier as restructuring costs rose, as did the cost of edible oils, such as soy and palm oil.
The company lifted prices across its range of products by an average 7% in the quarter, but that wasn’t enough to offset the higher costs and slowing demand in some markets, such as Spain, France and the US as consumers witch to private label brands to save money. Sales growth came from higher prices, especially in the US (sales rose 6.8%, compared to 5.8% in the March quarter). But with prices rising by 7% (and more for some products), volumes actually fell, especially in the US and Europe. Sales volumes in Europe fell 2.9% in the quarter, while underlying sales growth in the US came entirely from higher prices with consumer volumes lower than the second quarter of 2007.
While Australia deregulates its grain export market … Russia plans to form a state grain trading company to control up to half of the country’s cereal exports, intensifying fears that Moscow wants to use food exports as a diplomatic weapon in the same way as Gazprom has manipulated natural gas sales. The move by Moscow, the world’s fifth-biggest exporter of cereals, has been sharply criticised by US agriculture diplomats as a “giant step back” to the Soviet era.
The decision to control food exports is the latest sign of how soaring food prices are reshaping the agriculture industry. The recreation of Soviet-style state trading will aggravate anxieties of food-importing countries about their dependence on the international market, which has been severely disrupted this year after exporters, including Russia, imposed prohibitive foreign sales duties or export bans. — Financial Times