End Of Year Economic Round Up
A look at how the economy has peformed and thoughts for 2010....
Rates held and QE extended
The Bank of England’s rate-setters decided to pump an extra £25bn into the economy
in their quantitative easing programme. They kept interest rates unchanged at 0.5% for
an eighth month.
Economy contraction revised
The UK economy contracted at a slower pace than originally estimated between July
and September. Third quarter economic output shrank by 0.3%, an improvement on
the original estimate of a 0.4% contraction. Both the manufacturing and service sectors
performed better in the third quarter than was first thought
Rise in unemployment slowing
The number of people unemployed in the UK rose again in the three months to
September, although the 30,000 increase was the smallest since May 2008.
Unemployment totalled 2.46 million in the quarter, according to the Office for National
Statistics (ONS). The jobless rate remained at 7.8%
High street fortunes improve
UK retail sales increased in October said ONS. Sales were up 0.4% from September
and 3.4% on a year earlier, thanks largely to improved sales in clothing and footwear.
The annual growth rate was the highest since May last year. (Moneyfacts 20/11)
Separately the British Retail Consortium revealed that October saw its best sales
figures for seven years. UK retail sales rose 3.8% on a like-for like basis from October
last year
BoE shows slow recovery in lending
• The house purchase sector continued to recover, with approvals rising from a
seasonally adjusted 56,200 in September to 57,300 in October, the highest level
since April 2008. However, the pace of improvement continues to slow.
• In contrast there was further deterioration in the remortgage sector in October.
Seasonally adjusted remortgage approvals totalled 24,900, the lowest number
since January 1999.
• Gross advances totalled £13.0bn in October, from £12.6bn in September.
• Net lending totalled £0.9bn in October from £1.5bn in September. (BoE)
CML releases revised forecasts for the housing market
• The number of housing transactions will reach 810,000 this year and 850,000 next
year
• Gross lending will total around £141 billion this year and £150 billion next year
• Net lending will be modestly positive this year at £8 billion (revised from a negative
expectation of minus £5 billion previously), and £15 billion next year
• Assuming interest rates remain at their current low levels, the number of mortgages
2.5% of balance or more in arrears will end the year at 195,000 (down from
previous forecast of 360,000), and will rise only modestly next year to 205,000.
• The number of repossessions this year will total around 48,000 (0.43% of all
mortgages) and around 53,000 (0.48%) next year.
CML says “In terms of new lending next year, we expect a modest increase. But it is
difficult to see the case for a dramatic upturn in the absence of significant improvement
in the wider economic picture. There is a risk that public spending cuts and higher
taxes could choke off recovery. So, although we have become more optimistic, we
remain cautious about market prospects.” (CML)
Demand outstripping supply
Demand is exceeding supply across the housing market, with estate agents registering
five house hunters to every available property, according to the National Association of
Estate Agents (NAEA). The average branch had 57 properties on its books in October,
down from 62 in September. This demand is pushing house prices up. 22% of sales
were made by first time buyers – more than double the number this time last year
BTL lending rises for first time in two years
• CML says that in the third quarter gross lending rose for the first time in two
years, increasing 10% from second quarter (Q2) levels to £2.1bn – with the
number of advances rising by 10% from 21,600 in Q2 to 23,700.
• Net lending rose by 3.6bn
• BTL arrears (3+ months) fell again – from 2.49% in Q2 to 2.19%. This compares
to a rate of 2.40% within the wider mortgage market (CML)
Commenting on the data, the CML‘s director general Michael Coogan said – “At this
stage, the recovery is modest – but the figures show that buy-to-let is here to stay. Buyto-
let lenders are among those facing some of the biggest challenges in raising
mortgage funding, so the improved figures are all the more welcome.
Rents rising
Although excess supply has depressed rents over the past year, the number of
properties available to rent decreased by 3.5% in November following a 10% fall in
October according to Find A Property. This significant drop in supply levels has put
upward pressure back on rents, which rose slightly in November. This was the seventh
consecutive month of stable or rising rents, and has also created a more dynamic and
fast-moving market. The number of days properties are taking to let, which now stands
at just 55 days, is down 22.5% from the 71 days recorded at the start of the year
