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Economics
UK MORTGAGE AND MONEY SUPPLY DATA FUELS DOWNTURN CONCERNS
* Mortgage approvals slip to their lowest level in eight months
* Monetarists say sharp drop in money supply signals recession
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By Tom Rees
October 30, 2023 at 10:49 AM GMT+1
Updated on
October 30, 2023 at 11:49 AM GMT+1
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2:49
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% 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% 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%, up by 19
basis points and more than triple levels in early 2022. M4 money supply
excluding intermediate other financial corporations fell 4.2% in September from
year ago, the second decline in at least 13 years.
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 ($1.7 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.
“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% or
higher.”
Read more:
House Prices Are Falling in Most Parts of the UK, Zoopla Says
Survey Suggests UK Landlords Set to Sell Out at Triple 2021 Pace
— With assistance by Harumi Ichikura and Damian Shepherd
(Updates with details from the report.)
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