Biggest house price jump in seven years reignites inflation concerns

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The Bank of England is looking closely at the surging housing market, deputy governor Dave Ramsden said in an interview today.

Deputy Governor Ramsden said in the interview there was a “risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure.” 

“We are looking carefully at the housing market and a raft of real-term indicators,” he said.

“If (inflation is) not temporary we know what to do about that. We can push bank rate up from its historically low level (of 0.1%) and we know what that will do to demand.”

House prices saw their highest rise for seven years in May with a 10.9% jump over this time a year ago according to Nationwide’s monthly survey.

A house in the UK now costs £242,832 on average or almost £24,000 more than a year ago said the building society.

Nationwide added there was little sign of growth slowing with the majority of those moving saying it had little to do with the stamp duty holiday that starts to taper off from September.

People rather were shifting housing preferences to larger premises with gardens, said the society’s chief economist Robert Gardner, who predicted even steeper rises in the coming months given how weak the market was in the early stages of the first lockdown a year ago.

The Office of National Statistics backed up the data with its own broader survey showing prices rose by 10% in March, the largest rise for nearly 14 years.

Inflation in housing is not just confined to home prices, raw material cost also are rising with several building groups noting the issue as one of concern over the weekend.

Travis Perkins said it was increasing prices of bagged cement, chipboard and paint by 5% from today, with timber and steel also in short supply.

Timber prices have rocketed due to supply issues caused by shutdowns during the lockdown and a surge in shipping costs as businesses globally have rushed to restock as lockdown restrictions have eased.

Wickes PLC (LON:WIX), which was demerged from Travis Perkins PLC (LON:TPK)  in April, today said it had seen a sales boom over the past 21 weeks, with revenues rising by 46% and by 23% on two years ago respectively.

Noting the supply issues, David Wood, Wickes’ CEO, said: ”Availability constraints and inflationary pressures across some raw materials have been well-flagged, but we have strong supplier relationships and are working closely with them to ensure we continue to provide customers with the products they need at the best possible value.”

Liberum said it was likely any cost rises would be passed on to consumers.

Shares in Wickes rose by 5.7% to 270.5p.

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