UK mortgage and money supply data fuels downturn concerns
UK HOUSING and money supply data flashed warning signs for the economy, with figures that underscore the impact of a rapid series of interest rate increases from the Bank of England.
Banks and building societies authorized 43,328 mortgages last month, the lowest in eight months, data from the central bank showed. Separate figures showed money supply contracted sharply in September, a sign to monetarist economists that the UK could be heading into a recession.
The data highlighted the growing pressure being put on the economy by the highest borrowing costs since 2008, which have slowed activity in the housing market and reduced the pace of lending by banks. That’s feeding through into weaker consumer confidence, and surveys suggest a likely contraction in the economy.
“The further decline in bank lending in September will continue to weigh on activity, particularly in the housing market,” said Ashley Webb, UK economist at Capital Economics. “This is consistent with our view that a mild recession may already be underway and it supports our view that the Bank of England will leave interest rates on hold at 5.25 per cent on Thursday.”
The central bank has lifted its benchmark lending rate in 14 steps since the end of 2021 to curb inflation that remains more than triple its 2 per cent target. While mortgage rates have eased in recent months, home buyers and those who refinance their home loans still must pay much higher costs than in the first half of 2022 before Liz Truss’s budget and BOE rate rises sent them soaring.
The BOE said effective interest rates on new home loans was 5.01 per cent, up by 19 basis points and more than triple levels in early 2022. M4 money supply excluding intermediate other financial corporations fell 4.2 per cent in September from year ago, the second decline in at least 13 years.
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Monetarists – who foresaw the surge in inflation by looking at the money supply data – now argue that a collapse in the figures points to recession. However, the BOE has pushed back against using the money supply data as an indicator for the economy and inflation.
The BOE said that consumers took out £1.4 billion (S$2.3 billion) on unsecured credit such as credit cards, down from a revised £1.7 billion the previous month.
A separate report from the online property portal Zoopla found that four out of every five local areas suffered a year-on-year decline in house prices in September. That’s up from around one-in-20 as recently as six months ago.
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“Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again,” said Richard Donnell, executive director at Zoopla. “Income growth is finally increasing faster than inflation but mortgage rates remain stuck around 5 per cent or higher.” BLOOMBERG
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