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| Property Related News |
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| A brief insight into the UK property market can be read below. This news page will be updated weekly. To subscribe to news directly to your inbox simply email news to; info@skybluehomes.co.uk. |
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| Week Commencing 30th August 2010 |
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Net lending, which strips out redemptions and repayments, totalled just £86m during the month.
The figure was way down on June's tally of more than half a billion pounds and even further off forecasts of closer to £700m. The figure was the second lowest since the central bank's records began in 1993, although there have also been two months when net lending was negative.
On a more positive note, the data showed an unexpected rise in the number of mortgage approvals and the amount of consumer credit.
The Bank said 48,722 mortgages were approved last month.The Government will undoubtedly read these figures with a great deal of relief.
The figure represents only a marginal improvement on June, but still defied analysts' predictions of a fall.
Meanwhile net consumer lending was £173m in July, beating expectations that it would remain unchanged and reversing June's negative reading. Howard Archer, chief UK economist at Global Insight, said the figures backed up forecasts of house price falls in late 2010 and into 2011.
”Housing market data and survey evidence has been consistently downbeat recently and this is no exception,” he said. ”Although the Bank of England somewhat surprisingly reported that mortgage approvals edged up in July, the fact remains that they were still at a very low level and point to ongoing muted housing market activity.
”Meanwhile, net mortgage lending... was well below the monthly average of £0.8bn for the previous six months and was extremely low compared to long-term norms.”
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Interest rates may rise to 8pc within two years to choke off soaring inflation, according to radical new research. Andrew Lilico, chief economist at the influential Policy Exchange think tank, has warned of an interest rate environment not seen since the 1990s. He said the rise could happen as the recovery beds in and Government measures to stave off a recession lead to an explosion in the money supply. Mr Lilico also warned of a return to ”boom and bust”, as ballooning inflation threatens to tip the economy back in to recession in 2013 or 2014.
”Given the constraints of late 2008 and the absurdities of subsequent fiscal, finance and regulatory policy, if we can get away with a recession of only 6.6pc, deflation of only 2pc and inflation of only 10pc for one year, [Bank of England Governor] Mervyn King will deserve a medal,” Mr Lilico said.
A brief double dip recession early next year is likely, he said, but it ”would be quite compatible with a boom thereafter”. That boom would quickly run out of control, as the £200bn of ”money printing” by the Bank during the crisis would lead to ”a huge expansion in the money supply, which will lead to inflation”. He estimates that the Retail Prices Index (RPI), the inflation measure favoured in wage settlements and against which annual rises in train fares are priced, would rise ”above 10pc”. The Consumer Prices Index (CPI (NYSE: CPY - news) ), the inflation measure that the Bank is responsible for keeping at around 2pc, will top 6pc, Mr Lilico reckons.
”I believe that this will be the combined result of natural recovery-driven growth and massive and unsustainable investment driven by huge monetary growth,” he said.
This week, official data from the Office for National Statistics is expected to confirm that the economy grew 1.1pc in the second quarter of the year reinforcing hopes that the recovery is strong enough to withstand the Coalition's planned spending cuts.
To control inflation, ”interest rates will rise rapidly as well”, Mr Lilico says. ”To keep [RPI] inflation down to only 10pc for one year, the economy will have to be able to tolerate interest rates of perhaps 8pc.”
Mr Lilico's alarmist comments echo those of Sir John Gieve, the former Bank of England deputy Governor, who said last month that he expects ”rates to start rising faster than the market currently expects I wouldn't be at all surprised to see interest rates at 2.5pc a year from now”.
High interest rates, however, could prove too much for households, which are currently benefiting from historically low average mortgage rates of 4pc.
Mr Lilico added: ”There is a risk that... the economy will not be able to tolerate 8pc interest rates without the mass defaulting on mortgages that we are trying to avoid. If that is the case, then interest rates may have to be kept lower for an additional nine months and the consequence will be inflation peaking at 20pc rather than 10pc, as in the 1970s. The consequence of interest rate rises will be another recession in 2013 or 2014,” he said.
Mr Lilico, a monetarist at the right-of-centre think tank, is close to the Coalition but his ideas are considered extreme. He said: ”The fact that scenarios such as mine are regarded as bizarrely unlikely is, to my mind, an indication that certain quarters have lost their sense of historical perspective... Policymakers in the early 1990s did not want inflation to exceed 10pc they simply lost control of the situation and were unable to prevent it. Are we really so confident that there is no chance of policymakers today losing control of events?” |
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