U.K. Housing Cools as Political Uncertainty Undercuts Demand

Updated on
  • RICS index drops to 7 in June vs 17 in May, lowest since July
  • Sales outlook for next year at weakest since after Brexit vote

U.K. house-price growth cooled in June as the inconclusive election weighed on demand, according to the Royal Institution of Chartered Surveyors.

RICS said its index declined from 17 in May to 7, its lowest level in almost a year, indicating that a smaller majority of real-estate agents saw price gains. A measure of predicted sales over the next year also fell to its lowest level since the immediate aftermath of Britain’s European Union referendum.

Increases in home values have slowed this year as Brexit clouds the economic outlook. The prospect of higher interest rates may also hit demand in the coming months. Bank of England official Ian McCafferty on Thursday said he’s inclined to again vote for a hike next month after a bigger-than-expected split among policy makers at the last decision.

RICS said its survey showed domestic political uncertainty was the biggest factor behind the subdued market. Prime Minister Theresa May’s bid to strengthen her hand in EU negotiations backfired last month when she lost her parliamentary majority in a snap election.

“Perhaps not surprisingly in the current environment, the term ‘uncertainty’ is featuring more heavily in the feedback we are receiving,” said Simon Rubinsohn, RICS chief economist. “This seems to be exerting itself on transaction levels which are flatlining.”

Nationally, sales activity could remain weak as measures of new buyers, new instructions and agreed sales all showed more agents reporting declines than gains, RICS said.

The survey showed the weakness of central London’s housing market has spread to the surrounding regions, with measures of price inflation in southeast England and East Anglia declining. The city’s underperformance, particularly among its most expensive properties, has been a trend since the Brexit vote and tax changes for some homes.

A separate report published on Thursday by the British Chambers of Commerce signaled the U.K. economy grew at a subdued pace in the second quarter. A survey found manufacturers and services providers saw “static growth,” with the latter seeing indexes of domestic activity, employment and investment weakening, the business lobby said.

The pound rose against the dollar after McCafferty, who is in favor of raising interest rates from their current record-low 0.25 percent, made his remarks in an interview with The Times. Sterling was at $1.2946 as of 8:37 a.m. London time, up 0.5 percent on the day.

(Updates with comments from BOE’s McCafferty in third paragraph.)
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