The pound continued its positive start to a new trading month in the foreign exchange market yesterday and improved on the 19 month high against the Euro and the 6 year high against the US Dollar as well as having a better day against the Australian dollar when it rose to reach a 5 week high.
The catalyst for the latest rise was the latest data from Markit on the UK construction industry. The data showed the highest level of activity for 4 months in June with the UK house builders at the fore-front although there is underlying concern about widespread skill shortages in the industry.
Chris Williamson at Markit "The growth is coming at a price. Upward pressure on pay rates reflects widespread shortages of suitable subcontractors. Survey respondents have reported by far the steepest deterioration in sub-contractor availability ever recorded by the survey in recent months, albeit with a very slight easing in June."
In a separate report, the Nationwide reported that UK house prices rose last month at their fastest annual pace since January 2005 with house prices rising by 1% month-on-month in June after a 0.7% rise in May. This takes the annual rate of increase to 11.8%, the biggest rise in more than nine years.
Not surprisingly, London continues to outpace the rest of the UK with London house prices in the three months to June up a massive 25.8% on the same period last year, the biggest annual increase since the third quarter of 1987. London house prices are now 30% above their 2007 peak, with the average price of a London property reaching over £400,000 for the first time since records began.
Nationwide Chief Economist Robert Gardner said “The annual pace of growth in the capital will probably start to slow in the quarters ahead, given the high base for comparison from Q3 2013 onwards and given anecdotal evidence from surveyors and estate agents that activity may be starting to moderate. However, these policy measures, along with previous actions, such as the introduction of Mortgage Market Review (MMR) measures, should help to limit the risk of house prices becoming detached from earnings without de-railing the recovery in the wider housing market. This is important, since lending activity has slowed markedly in recent months, with mortgage approvals in May around 19% below January’s high. The slowdown may partly be the result of the introduction of MMR measures, which may take a few months to bed down. However, the underlying pace of demand remains unclear, and transaction levels remain some way below historic averages."
In the euro zone, Eurostat confirmed yesterday that the euro zone economy grew as expected in the first quarter of 2014 with euro zone gross domestic product (GDP) up by 0.2%. Annual growth was confirmed at 0.9%. The Euro continues to suffer in the currency markets ahead of the latest European Central Bank (ECB) policy announcement due out later today.