10 August 2026: UK house prices flatline as mortgage rates rise

The latest figures for UK growth will be released later this week, with economists predicting the economy grew by 0.4% in the second quarter as businesses adapt to the fallout from the war in Iran. However, some industries are coming under increasing pressure.

This would mean the economy has continued to grow after a 0.6% rise in GDP in the first three months of 2026.

Figures from the Office for National Statistics are being published on Thursday. They are set to show a degree of resilience in the economy amid supply chain issues and price pressures linked to the conflict, as well as a period of political uncertainty.

The economy has found some resilience in the face of the hit from the war in Iran.

Furthermore, recent data indicate that factories and manufacturing firms are stockpiling in anticipation of supply shortages and price increases, helping keep growth elevated.

But a weaker picture may be emerging from June, as heatwaves bring mixed results for businesses and some industries come under increasing pressure, economists said.

A majority of economists expect monthly GDP to dip by 0.1% in June, reversing the 0.1% gain in May, as a sharp fall in construction activity drags on growth, while services and industrial production stagnate.

A quarterly increase in GDP will likely be good news for new Prime Minister Andy Burnham, who has said he wants to achieve “growth in every postcode” across the UK.

He opened a new Government centre in Manchester in late July, called No 10 North, where he is expected to work once a week as part of his push to decentralise power from Westminster.

UK house prices stagnated in July, with the average property price dipping to £299,253 as annual growth slowed to just 0.1%, the weakest pace since November 2023. Lloyds Banking Group attributed the flatlining to stretched affordability and rising mortgage rates, driven by tensions in the Middle East and inflation fears.

Despite the Bank of England holding the base rate at 3.75%, average two-year fixed mortgage rates have climbed. A sharp regional divide persists, with Northern Ireland prices surging 7.4% year-on-year while Greater London fell 1.3%. Analysts describe the market as trapped in a narrow range, with activity expected to remain relatively stable for the rest of the year.

Amanda Bryden, Head of Mortgages at Lloyds Banking Group (LLOY.L), noted that although housing demand remains broadly steady, the market is highly sensitive to changes in borrowing costs. "Activity continues to respond quickly to changes in mortgage rates," Bryden said. Looking ahead, we expect market activity and house prices to remain relatively stable for the rest of the year, provided there are no further major shocks.

This stagnation persists despite the Bank of England holding the base rate at 3.75%. Lenders have been raising mortgage rates in recent weeks, driven by global uncertainty rather than domestic monetary policy shifts. According to financial data provider Moneyfacts, the average two-year fixed residential mortgage rate stood at 5.63% on Friday, while the average five-year deal was 5.67%. Both rates have risen sharply from below 5% at the start of the year.

British firms developing and using artificial intelligence are becoming more productive, but gains are coming at the expense of jobs, according to analysis by the Bank of England (BOE).

Software and IT consulting firms increased their contribution to annual productivity growth tenfold compared with the decade before the Covid-19 pandemic, contributing 0.1 percentage point in 2023-2025, according to the BOE.

Meanwhile, information-service providers shifted from being a drag to a driver of productivity over that period.

Firms adopting AI are also becoming more productive, the Bank found, particularly in sectors such as office administrative and business services, where repetitive tasks like scheduling meetings or processing invoices are ripe for automation.

The report provides early signs that British firms are finally moving from experimentation to the use of AI as a driver of growth. So far, the technology has remained elusive in growth statistics, despite rising adoption levels.

BOE governor Andrew Bailey has said AI’s effect on productivity is likely to follow a J-curve, as businesses take time to learn how to use the technology.

With the UK stuck between technological breakthroughs, he argues that AI has the potential to break the economy out of its prolonged period of anaemic growth.

The pound’s performance last week was not a simple risk-on or risk-off story. It was a rotation story driven by shifting interest-rate expectations, USD softness, yen intervention, and commodity-currency sensitivity to oil prices.

GBP was firm where USD weakness mattered, soft where local stories, yen intervention, and eurozone resilience dominated, and mixed across commodity currencies.

Traders now price in a 65% chance the Fed holds rates steady in September, after nonfarm payrolls fell well short of expectations.

Even though the unemployment rate was slightly lower in July, the U.S. economy saw a decline in jobs.

The unemployment rate fell to 4.1%, but the labour force participation rate fell to 61.4%, the lowest in more than five years.

“Nonfarm payrolls fell by a seasonally adjusted 23,000 for the month, compared with a downwardly revised 20,000 for June,” CNBC reported. “The Dow Jones consensus forecast had been looking for a gain of 83,000.”

The negative jobs report suggests the economy may still be slowing, which could lead to lower inflation. The July employment report reinforced that the labour market is not out of the woods quite yet.

However, wage growth was more encouraging. Average hourly earnings increased by just 2 cents, bringing the 12-month average down to 3.2%.

The markets may be responding to the recent jobs report. However, the Federal Reserve is still debating whether to raise interest rates in an economy where the labour market has been improving from a moribund year in 2025, while inflation has remained well above the Central Bank’s 2% target.

Federal Reserve Bank of Richmond President Thomas Barkin said on Friday that July hiring data reflect a continuation of recent trends.

The ​job ⁠data, which showed ⁠a decline in payrolls and little change in the unemployment ​rate, “was very consistent with how ⁠I've been ⁠seeing the labour market, which is, ​it's not loose, it's not tight,” Barkin said in a video presentation hosted ⁠by the National Association for Business Economics. “When you ⁠talk ‌to employers, the ⁠employers still ​aren't hiring, and of ​course the ⁠good news is they're not firing either.”

Meanwhile, Minneapolis Fed President Neel Kashkari told reporters that he believes it is time to begin gradually raising interest rates to bring down inflation and avoid having to implement more aggressive rate hikes later.

In an interview, Kashkari advocated a gradual approach, possibly starting in September, but did not commit to a specific timeline. However, his comments were made before the release of the employment report.

At last week's Federal Open Market Committee (FOMC) meeting, Kashkari was one of three officials who dissented, favouring a 225-basis-pointincrease in the benchmark interest rate. The other nine voting members opted to keep the federal funds rate unchanged in the range of 3. 3.5%–3. 75%.

During a live interview at the Aspen Ideas Festival in Colorado, he stated: “Corporate earnings are extraordinarily high and performing very well. Consumers are still holding up, and so is the labour market. Looking at this whole picture, I have to ask: What evidence is there that monetary policy is particularly restrictive right now?” He may have changed his stance following the release of the NFP data.

Finally, United States Federal Reserve Vice Chair for Supervision Michelle Bowman assessed on Saturday that the Fed's policy is "well positioned" for returning inflation to the 2% target. At the 2026 CEO & Senior Management Summit and Annual Meeting, Bowman noted that when it comes to stablecoins, community banks need to offer the services their customers are asking for. Moreover, the Fed member emphasised that the Central Bank still has a responsibility to supervise smaller banks so they remain "safe and sound."

The USD’s performance last week was shaped by macro disappointment and positioning rather than by a single narrative: Soft US data drove lower yields, which in turn prompted USD selling. Improved global risk sentiment supported the AUD, CAD, and EUR.

A Yen intervention unwind led to volatility, but net USD softness and Fed hawkish talk had limited impact given weak data.

The dollar was weakest against commodity and European currencies, flat vs GBP, and slightly stronger vs JPY and CHF.

Washington reportedly informed the European Central Bank only after using its Euro reserves in a coordinated intervention to support the Japanese yen, raising questions about consultation among major monetary authorities.

The United States sold Euros from its foreign-exchange reserves to buy Japanese yen. It informed the European Central Bank only after the transaction was completed, according to people familiar with the matter. The disclosure adds a European dimension to the US intervention in the yen market first reported by the FT on 1 August. Washington acted alongside Tokyo to support the Japanese currency, but rather than selling dollars to fund its purchases, the United States sold Euros.

The ECB and the Federal Reserve Bank of New York declined to comment on the notification arrangements. A US Treasury spokesperson told the FT that the department does not coordinate decisions on the allocation of reserves held in its Exchange Stabilisation Fund with foreign authorities.

The dispute centres on consultation rather than control of the reserves. The United States holds Euros as part of its official foreign-exchange assets and has authority to buy or sell those holdings. The question raised in Frankfurt is whether advance communication should have occurred before the Euro was used in an intervention aimed at influencing another major currency.

Eurozone countries have begun positioning their preferred candidates for the next leadership of the European Central Bank (ECB) as the succession race for three of the institution’s most influential positions gathers momentum.

ECB President Christine Lagarde is due to complete her term in October 2027, but speculation persists that she could leave earlier to pursue a role in France’s April 2027 elections. She has also been linked to a future leadership position at the World Economic Forum, fuelling further expectations of an early departure.

The terms of ECB Chief Economist Philip Lane and Executive Board member Isabel Schnabel will also expire in 2027, making it a pivotal year for the Central Bank’s leadership.

The Netherlands has officially endorsed former De Nederlandsche Bank governor Klaas Knot for the ECB presidency. Knot, a former member of the ECB Governing Council, has long been regarded as one of Europe’s most respected central bankers.

Lagarde herself described Knot last year as a very strong candidate for the ECB’s top position.

Spain has backed Pablo Hernández de Cos, the current head of the Bank for International Settlements (BIS) and former Governor of the Bank of Spain, who also previously served on the ECB’s Governing Council.

Another leading contender is Joachim Nagel, President of Germany’s Bundesbank and a current member of the ECB Governing Council. Nagel represents Germany, one of the four largest eurozone economies that traditionally hold significant influence over senior ECB appointments. It has been an unwritten rule since the ECB was formed that a German should not hold the Presidency of the Central Bank, given the German economy’s pre-eminence in the region.

The Eurozone has a busy schedule of official data releases this week, mostly from Eurostat and the ECB.

The three highest-signal releases this week are: Industrial Production for June, due on Wednesday; Flash GDP & Employment (Q2) — Thursday, and International Trade for June, also due on Thursday. Comments from ECB officials are generally limited in August, as this is the “holiday month.”

The euro’s week was defined by steady macro support rather than a strong directional trend. It was characterised by broad but modest gains across G10, outperformance vs safe-havens (JPY, CHF), and underperformance vs commodity currencies (AUD, CAD).

The EUR/USD pair was supported by USD softness and Eurozone data.

This was a “quietly firm” week for EUR rather than a breakout.

Have a great day!