Mixed figures hit rate cut hopes

The strong figures indicated that the UK housing market may finally be picking up after a long period of sluggish growth, and will assuage fears of a possible sharp downturn in house prices.

“The data support our view that the housing market is more likely to see an extended period of relatively subdued activity and soft prices rather than undergo a sharp correction,” said Howard Archer, chief UK economist at Global Insight.

There was also a pick-up in mortgage approvals, which provide an indication into future demand. The number of approvals for house purchase rose to 96,000 in May from 95,000 in April, the highest since July 2004 and above analysts’ expectations for a rise of just 94,000.

Approvals totalled £22.7 billion in May, down slightly from April’s strong £24.4 billion. The data also showed that unsecured lending was also strong in May.

Consumer credit rebounds

Separate figures showed that net new consumer credit rose by £1.8 billion in May, well above analysts’ expectations for a rise of just £1.4 billion and above April’s increase of £1.3 billion. The figure reflected a rebound in credit card lending, which totalled £800 million, up from April’s dismal reading of £358 million and the highest reading since January.

The Bank also reported that total net lending, which adds up net consumer credit and net mortgage lending, rose £9.8 billion in May, the highest since August 2004 and well above April’s £8.7 billion increase.

Expectations for an interest rate cut appeared to have become stronger in recent week’s with the latest Monetary Policy Committee meeting minutes revealing two members of the Bank’s nine-member rate setting committee had voted for a cut.

Blood on the high street

Retailers have been vocal in calling for lower borrowing costs after the high street has complained of continuing difficult conditions amid a dearth of consumer spending.

Sales recorded the sharpest fall in the survey’s 22 year history, the CBI said, adding that stores expect a similar pattern in July.

Earlier this week the British Bankers’ Association suggested that low levels of borrowing on credit cards last month had cast another cloud over the sector.

However, the employers’ organisation said that the year-on-year comparison exaggerated the underlying picture, as June 2004 was a particularly good month on the high street.

Forty-two per cent of retailers surveyed by the CBI said their sales volumes were down over the year to June, compared with 23 per cent saying they were up - a balance of minus 19 per cent, compared with minus seven per cent in May and minus 14 per cent in April. The survey’s less volatile three month trend in sales, which has been falling since the beginning of the year, is also the lowest recorded since the survey began in 1983.

With sales volumes weak, retailers cut back on orders placed with suppliers at the fastest rate since January 1999. A further reduction in orders is expected in July, although at a slower rate.

John Longworth, the executive director of ASDA and chairman of the CBI’s DTS Panel, said: “A year ago retailers were reaping the benefit of ‘Euro 2004’ which was credited with boosting sales of everything from football clothing to TVs and beer. But while this may explain part of the record year-on-year decline now registered, there is no doubt that the underlying picture is also bad.

“Last year’s interest rate rises, were as usual, slow to take effect but consumers have clearly tightened their belts quite significantly since the beginning of this year. With the slowdown in the housing market and a rise in energy bills it’s not surprising retailers are suffering, although some more than others. Over the past two weeks many stores have brought forward their summer sales in an attempt to encourage shoppers and to shift seasonal stock.”