Must read: Barratt, Thames Water, UK GDP, house prices and car production

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS

On the final trading session of the month and H1, European equities are in the green. The FTSE 100 is roughly flat so far this year, sharply underperforming the DAX and the CAC which are both up over 10% while the major averages stateside are up even more.

The tech-heavy Nasdaq 100 has been a star performer this year, rebounding around 30% after last year’s slide. Federal Reserve Chair Jay Powell however signalled Thursday there are likely to more rate rises to come following June’s temporary pause in the tightening cycle. 

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UK final Q1 GDP came in at 0.1%, unchanged from the previous quarter, as expected. Meanwhile, UK car production jumped by 27% in May, the fourth consecutive monthly increase thanks to demand for hybrid and electric vehicles.

UK NATIONWIDE HOUSE PRICE INDEX  

UK Nationwide June house prices rose by 0.1% month-on-month, up from -0.1% in May and ahead of expectations for -0.3%. House prices fell by 3.5% year-on-year, also better than forecasts for -4% but the fastest drop since 2009. The average house price hit £262,239, rising from £260,736 last month, with all regions except Northern Ireland experiencing annual price falls in the second quarter. 

The housing market is suffering on the back of the Bank of England’s aggressive rate hiking path which has sharply pushed up mortgage costs. Two-year and five-year fixed rate mortgages in the UK are at their highest level for seven months.

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Coupled with the pressures from inflation which are squeezing household budgets and landing real wage growth in negative territory, consumers are feeling the pinch, prompting many to turn to the rental market instead of trying to get onto the property ladder. However, stemming an even steeper slide is the robust labour market and a chronic shortage of housing supply in the UK.

BARRATT DEVELOPMENTS 

Barratt Developments (LSE:BDEV) has agreed to sell 604 homes to Citra Living Properties, owned by Lloyds Bank for around £168.4 million. Citra Living, which was established in 2021 aims to provide homes for Britain’s rental market with both short- and long-term tenancies across a range of locations. 

Rental costs have been going through the roof lately amid increased demand as higher mortgage costs deter many from trying to buy a property. Reports suggest that people are spending more of their wages on rent than at any other time in the last decade. Citra is trying to increase supply to the rental market to respond to this surge in demand. 

For Barratt, this means a modest cash windfall at a time when its share price has been struggling. Barratt Developments is down by more than 10% over the last month, weighed down by stronger-than-expected UK inflation and wage data and another 50 basis-point rate hike from the Bank of England this month.

THAMES WATER

Adrian Montague has been appointed chairman of Thames Water and will join the board on 10 July. He has previously been chairman of British Energy, Anglican Water and Aviva. Earlier this week CEO Sarah Bentley stepped down as CEO after two years in the top job amid pressure on the business. 

Thames Water has been struggling with multiple issues lately including sewage spills, flooding, C-suite uncertainty, shareholder dividend issues and a £14 billion debt pile. Plus, it has been dealing with the fallout from inflation with a sharp increase in debt servicing costs as well as expensive energy and chemicals bills. 

It is in the middle of its second year of its eight-year turnaround plan. However contingency plans are being drawn up in case of a collapse.