Economy brief
UK Housing Flatlines as Hawkish Bank of England Squeezes Growth
Elevated mortgage rates flatline property prices while Bank of England split votes and energy risks cloud medium-term growth forecasts.
Economy
A three-way split inside the Bank of England kept gilt yields near 4.9% — raising corporate debt costs as rate hike risks persist.
BackgroundThe Bank of England paused its rate adjustment cycle as inflation cooled toward target levels. However, persistent wage growth and international energy price volatility maintain hawkish pressure among policymakers.
- Three MPC members broke consensus to support a 25 basis point hike to 4.0%, pointing to secondary energy inflation risks.
- Financial markets are pricing in a potential quarter-point rate increase by December if consumer prices reaccelerate.
- Higher-for-longer policy expectations support commercial bank net interest margins while raising debt service costs for corporate borrowers.
Economy
UK house price growth ground to a halt — demonstrating how high mortgage rates continue to cap property market liquidity.
BackgroundUK property price growth decelerated throughout 2026 as the Bank of England maintained elevated base rates to counter sticky inflation. High borrowing costs continue to squeeze household affordability.
- Monthly property prices fell by £143 in July, leaving annual price growth at its lowest level since November 2023.
- Two-year fixed mortgage rates averaged 5.63%, restricting purchasing power and keeping market transaction volumes subdued.
- Major UK mortgage lenders NatWest and Lloyds face reduced loan volume growth as potential buyers delay purchasing decisions.
Economy
EY raised 2026 UK growth to 0.9% — but warned Middle East shipping shocks could force an economic contraction next year.
BackgroundThe UK economy expanded faster than expected early in 2026, driven by service sector activity. Forecasters remain cautious over external geopolitical shocks affecting national energy costs.
- UK GDP growth for 2026 was adjusted upward from 0.8% to 0.9% due to strong high-value business service output.
- EY models indicate that extended Middle East shipping disruptions could push 2027 GDP into a 0.2% contraction while driving inflation higher.
- Technology and professional services accounted for 70% of UK GDP growth, benefiting data infrastructure firms like RELX and LSEG.
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