In the US, a central bank policymaker is warning that more interest rate hikes will likely be needed in order to lower inflation to the official 2% target.

Fed Governor Michelle Bowman will tell a “Fed Listens” event in Atlanta that she is looking for more signs that inflation is on a ‘consistent’ path downwards,

In prepared remarks for the event, Bowman says:

“Given these developments, I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the [2%] goal.

“I will be looking for evidence that inflation is on a consistent and meaningful downward path as I consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level.”

US consumer price inflation dropped to 3% in June, a two-year low.

French-Israeli telecoms billionaire Patrick Drahi has told debt investors today that he felt “shocked” and “betrayed” by an ongoing corruption probe in Portugal.

Drahi also insised that the investigation would have no impact on Altice International’s results, Reuters reports.

Drahi said the probe, which led to his right-hand man and Altice co-founder Armando Pereira to be placed under house arrest last month, had come as “a shock and as a huge disappointment to me”.

He added:

“If these allegations are true, I feel betrayed and deceived by a small group of individuals, including one of our oldest colleagues.”

The probe came at a tricky time for Drahi, who needs to manage the mountain of debt he built his empire on at a time of increasing interest rates.

Among other investments, he holds a 24.5% stake in UK telecoms group BT.

A Portuguese court last month ordered Pereira be placed under house arrest while an investigation into alleged corruption at the group’s local subsidiary is conducted, his lawyer said at the time.

Pereira, regarded as Drahi’s most trusted lieutenant, has denied any wrongdoing.

UK recruitment company PageGroup revealed today it has cut almost 450 jobs this year, after a slowdown in demand.

PageGroup told shareholders that the “challenging conditions” seen towards the end of 2022 continued into the first half of 2023.

It said “lower levels of both candidate and client confidence” meant companies are taking longer to choose candidates, who themselves are more reluctant to accept offers.

PageGroup says:

Reflecting the uncertain macro-economic conditions, temporary recruitment outperformed permanent, as clients sought more flexible options.

In line with these conditions, we reduced our fee earner headcount by 558 (-8.0%) in the first half, with reductions in all regions. Our total headcount of 8,572 is 448 (-5.0%) lower than at the end of 2022

Pretax profits have dropped by almost 45% this year, to £63.3m from £114.5m in January-June 2022.

More pubs in Britain went bust between April and June than in any quarter for more than a decade, new research today shows.

Closures jumped in the last quarter, as rising costs were exacerbated by the effects of the cost of living crisis on customers.

Price Bailey, the accountancy firm, calculated that 223 pub businesses had entered insolvency in the second quarter of this year, up from 200 between January and March.

Since last summer, 729 pubs have gone under, 80 per cent more than in the previous 12 months. The Times have more details.

Alex Jay, partner at Stewarts, says this shows the troubles in the UK economy:

“These statistics on record pub closures are a stark reminder of the real state of the economy, despite talk of avoiding a technical recession.

There will be a knock on – vicious circle - effect too. This is another property generating no income for its landlord, and drawing no customers to high streets already depleted by working from home practices.”

As well as cooling the housing market, higher interest rates are likely to push the UK into recession by the end of the year, warns Capital Economics this morning.

Ashley Webb, their UK economist, explains:

With CPI inflation soon to fall below average earnings growth, the cost of living crisis appears to be coming to an end. But households won’t suddenly stop feeling the pinch.

We suspect the level of real household disposable income will remain below where it was before the pandemic until early 2025. And with the full effect of higher interest rates yet to feed through, we still think the economy will enter a mild recession later this year.

Shares in UK housebuilders have slipped today, after Halifax reported that house prices fell again, by 0.3%, last month.

Persimmon, Britain’s largest housebuilder, are down 1.1%, while Taylor Wimpey have lost 1% and Barratt Development are 0.6% lower.

Persimmon are due to release financial results for the first-half of this year on Thursday.

Matt Britzman, equity analyst at Hargreaves Lansdown, says:

Housebuilder Persimmon is battling the tricky housing market, latest news from Halifax pointed to a 2.4% drop in prices over July in a third straight month of declines.

Margins are under pressure from higher costs and falling prices, results should shed light on the impact and give an update as to whether it’s on track to deliver the close to 9000 completions expected over the year.

In another blow to Germany’s economy, industrial production dropped more strongly than forecast in June.

Production fell by 1.5% compared with the previous month, the federal statistics office said on Monday. Analysts polled by Reuters had expected a smaller decline, of 0.5%.

This latest drop in German industrial production in June is another illustration of the country’s ongoing stagnation, says ING’s global head of macro, Carsten Brzeski.

Brzeski adds:

Industrial production is still more than 5% below its pre-pandemic level, more than three years since the start of Covid-19.

Production in energy-intensive sectors escaped the negative trend and increased by 1.1% MoM in June, still down by more than 12% over the year.

We looked at this issue in more detail in yesterday’s Observer:

In the City, the UK’s FTSE 100 index of blue chip stocks is down around 0.5% or 41 points in early trading, at 7521.

AJ Bell investment director Russ Mould says the possibility of further increases in US interest rates are dampening the mood, after last Friday’s US jobs report:

“Officials at the Federal Reserve are suggesting they are not yet done in their battle with rising prices. Having been slow to respond to what they believed was transient inflation in 2021, it seems central banks like the Fed are in no mood to be complacent.

“US jobs data which showed earnings rising faster than expectations on Friday will only strengthen this resolve.

The big move higher in UK rates continues to have a dampening effect on the UK housing market, Mould adds:

Figures from Halifax unsurprisingly showed a fourth straight month of declining prices. With mortgages becoming less affordable it is proving increasingly difficult for people to get a leg up on the property ladder or even join the ladder in the first place.

“Housebuilder Taylor Wimpey was among the top fallers on the FTSE 100 this morning. The sector faces a very different environment today after years of strong property prices, cheap mortgages and state support for first-time buyers.”

Here’s our news story on this morning’s Halifax house price report:

UK lenders have not, yet, made significant changes to mortgage rates since the Bank of England lifted base rate to 5.25% last Thursday.

Moneyfacts reports that the average 2-year fixed residential mortgage rate has fallen slightly to 6.84% this morning, down from 6.85% on Friday (and for most of last week).

The average 5-year fixed residential mortgage rate today is 6.35%, unchanged from Friday.

Former UK chancellor Kwasi Kwarteng has revealed he is among those suffering from the jump in mortgage costs since his mini-budget last autumn, as he has a tracker mortgage

In an interview with GB News last weekend, the former chancellor was asked whether he felt any sympathy for those affected by the rise in mortgage rates, before letting on that he was among them.

Kwarteng said:

“I’m probably revealing too much, but I’m on a tracker as well.

My bills have gone up considerably.”

Here’s the full story:

House buyers should approach the market ‘with caution’, following the four monthly falls in prices in a row, says Myron Jobson, senior personal finance analyst at interactive investor:

For many, the decision to buy or not to buy hinges on where mortgage interest rates land, Jobson points out:

Inflation is still key to the direction of mortgage rates. Fixed mortgage rates dipped following the lower-than-expected fall in inflation in June before creeping higher ahead of the Bank of England’s latest interest rate hike. Inflation is expected to ease significantly in the coming months, led by a fall in energy costs - which could pull down mortgage rates in the process.

Put simply, if inflation starts to move meaningfully lower, this takes the pressure off the Bank of England to continue raising interest rates, so mortgage rates could follow.

“Buyers should proceed with caution. With home prices and mortgage rates remaining elevated, buyers should be careful to avoid biting off more than they can chew.”

Britain’s chronic problem of poor housing availability may support house prices, even as it becomes more expensive to get a mortgage.

As Gareth Lewis, managing director of property lender MT Finance, points out, there aren’t enough houses for everyone who would like to buy one:

‘The continued decline in house prices is unsurprising as the market remains impacted by rate uncertainty and affordability issues. Buyers are continuing to either play the waiting game or become more aggressive when offering on properties.

But there are positive signs - there is still the desire to buy, but with a realignment with what is realistic or achievable in value.

‘The housing market is resilient, there are still not enough houses to go around so we will likely continue to see strong values, even with so much uncertainty.’

Back to the UK housing market, mortgage brokers and estate agents are backing Halifax’s forecast of a gradual decline in house prices.

Stephen Perkins, managing director at Norwich-based brokerage Yellow Brick Mortgages, says there was “certainly” a slowdown in sales in July.

High mortgage rates and talk of falling house prices to come are resulting in many buyers waiting for better conditions.

As more would-be sellers languish on the market with no interest from potential buyers, they will have to reduce their asking prices to attract offers. So house prices will drop over the coming months. However, it will be a more gradual correction of 5%-10% rather than the more extreme crashes that have been suggested by some. This appears to be the view of the Halifax, too, based on this latest house price report.”

Tom Bill, head of UK residential research at Knight Frank, predicts a 5% fall during 2023.

“The journey back to long-term rate normality has been fraught and put downwards pressure on house prices and sales volumes over the last year.

The previous government went too far, too fast for financial markets and the Bank of England has been accused of doing too little too late. However, some lenders are cutting mortgage costs as the bank rate nears its peak, which means that while sentiment will remain subdued, it should improve in the second half of this year.

While we expect UK prices to fall by 5% in 2023, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”

The buy-to-let sector appears to be “under some pressure”, Halifax’s Kinnaird adds, although:

…elevated interest rates are just one factor impacting landlords’ business models, together with considerations of future rental market reforms.

It remains to be seen how many may choose to exit and what that could mean for the supply of properties available to buy.