UK developers weather property downturn

Today’s top stories

• Hamas is demanding a four-and-a-half month ceasefire in Gaza, an Israeli withdrawal and the release of at least 1,500 Palestinian prisoners as part of a proposed deal to release the remaining hostages it holds.

• US President Joe Biden blamed Donald Trump for encouraging Republicans to torpedo what had been a bipartisan deal on funding for Ukraine.

• Uber reported its first full year of operating profits, thanks to strong demand for ride-hailing, deliveries and a growing advertising business. Expectations are rising of an imminent share buyback programme.

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Good evening.

A rare bit of M&A to create the UK’s leading housebuilder and new data showing property prices continuing to rise offer new hope for a sector that has been badly hit by higher mortgage rates.

Barratt’s £2.5bn offer for Redrow is the first move to consolidate by two big national developers since the market soured, leaving housebuilders to cut costs and slow land buying as profits and output sank. Based on current performance, the combined group would build about 22,000 homes a year, although some (including the Lex column) are sceptical.

New data from lender Halifax this morning showed house prices rising for the fourth consecutive month in January to their highest level since October 2022. It’s the latest sign that the market is recovering from the hit to demand stemming from the Bank of England’s programme of interest rate rises, which began in December 2021. 

The trend was confirmed by new purchasing managers’ index data yesterday showing construction sector optimism at a two-year high. Tim Moore of survey organisers S&P Global said construction companies were “increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon”.

Average UK mortgage rates fell for the first time in more than two years last week while home loan approvals have hit a six-month high, according to BoE data.

Sector optimism, however, isn’t universal, with a question mark still hanging over office property. A Canary Wharf building that went into receivership last year is to be sold at a 60 per cent discount to its last sale price, one of the largest distressed sales in London so far and a sign of how sharply the value of some offices has fallen. 

Housebuilding has also steadily risen up the British political agenda and is likely to be a key feature in the general election likely to be held later this year.

Housebuilders have been throwing support behind the opposition Labour party after accusing the Tories of “bowing to Nimbyism”. Industry executives say the government has capitulated to backbench MPs by scrapping plans to ease planning restrictions, a move they argue will lead to fewer homes being built. Redrow founder and largest shareholder Steve Morgan, formerly a Conservative donor, has been among the critics, saying “it’s like the government wants to destroy the industry”.

Frosty relations have not been helped by the high turnover of housing ministers: there have been 15 since the Conservatives came to power in 2010. Developers were also bruised by the government’s response to the deadly Grenfell Tower fire in 2017 and their perceived characterisation as “moustachioed Victorian barons”.

The FT also revealed last month that more than two-thirds of a government fund aimed at unlocking hundreds of thousands of new homes remained unspent more than six years after its launch, despite the chronic shortage of housing. 

Labour for its part has promised a “blitz of planning reform” should it win the election, fast-tracking brownfield sites, building new towns and improving the supply of affordable housing.

Need to know: UK and Europe economy

Bank of England policymaker Swati Dhingra told the FT that an interest rate cut was needed immediately to ward off “downside risks”. BoE chief economist Huw Pill said it did not need inflation to hit the 2 per cent target before implementing cuts. The NIESR think-tank said the UK might have narrowly slipped into technical recession — defined as two consecutive quarters of contracting GDP — at the end of 2023.

The world’s biggest tech companies are pressing the UK to speed up its safety tests for AI systems.

The FT revealed that the UK would wave through animal products from the EU if ports were overwhelmed by new post-Brexit border checks. Trade bodies had warned that paperwork and physical checks, introduced last week, risked disrupting supply chains and causing supermarket shortages. 

The European Commission opened up another stand-off with Hungarian Prime Minister Viktor Orbán over his sweeping new domestic security law, which Brussels says “will harm democracy”.

Isabel Schnabel, the most hawkish member of the European Central Bank’s executive board, warned that the “last mile remains a concern” in the fight against inflation and that cutting rates too soon risked a “flare-up”.

German industrial production fell for the seventh month in a row in December, passing the 2008 financial crisis for its longest-ever downturn. Factory output declined 1.5 per cent over the whole of last year and is down 10 per cent since before the Covid-19 pandemic hit. 

Need to know: Global economy

Federal Reserve official Loretta Mester said the still strong labour market in the US would not derail plans to cut interest rates this year.

The US Supreme Court tomorrow begins the process of deciding whether former president Donald Trump can be kicked off the primary ballot in Colorado. It will be the first time the court tackles how the constitutional measure originally designed to stop Confederates from holding office after the civil war affects today’s presidential candidates. Separately, a federal appeals court ruled Trump could not use presidential immunity as a shield against criminal charges over alleged interference in the 2020 election.

The US said it would restrict visas for abusers of commercial spyware, including those selling the encryption-busting malware as it tries to rein in a multibillion-dollar industry that has been tied to the repression of dissidents around the world.

In the latest instalment of our Climate Exchange series, Tina Stege, climate envoy for the Marshall Islands, says financing must be prioritised to protect the world’s most vulnerable countries.

Need to know: Business

Oil major BP expanded its share buybacks after reporting its second-highest annual profit in more than a decade of $13.8bn, although less than half of last year’s record total when soaring fossil fuel prices delivered an earnings bonanza across the industry. The head of Brazil’s Petrobras said his company intended to be one of the last remaining oil producers on the planet.

Not that it’s all plain sailing in the renewables sector. Denmark’s Ørsted today axed its dividend, announced job cuts and said it would exit offshore wind. Its struggle reflects pressures facing the wider industry, which has been hit hard by higher interest rates, overly ambitious expansion plans and supply chain disruption over the past two years.

Brewer Carlsberg warned that input costs were still rising and that it needed to keep raising prices to cover the increases. Weaker consumer demand and “sticky” cost inflation led to weaker than expected full-year earnings.

J Sainsbury, the UK’s second-biggest grocer, said it would buy back £200mn of shares and cut a further £1bn in costs. A strategy overhaul aims to offer more choice and consistent value for shoppers, a refined loyalty scheme and “a right-sized organisation”.

China’s biggest chipmaker SMIC expects to make next-generation smartphone processors as early as this year, despite US efforts to restrict their development. New production lines in Shanghai will mass produce the chips, designed by tech giant Huawei. Nvidia chip prices are soaring in Asia because of the US export curbs and the boom in AI.

The World of Work

As the return-to-the-office debate heats up once again, the Working It podcast discusses what might bring people back in, why it’s important for younger staff and how better tech could win remote workers over.

The treatment of victims in the UK’s Post Office scandal has raised the question of whether race played a role — some 40 per cent of sub-postmasters are from an Asian background — and comes as boardrooms experience a backlash against corporate diversity, equity and inclusion initiatives.

Some good news

Discussion of electric bikes usually focuses on the positive impact they can have in polluted cities. New research, however, shows they may also transform the way people experience rural areas and reduce the negative environmental effects of tourism.