Crashing Confidence
08 / Jun / 2008
Further data from the housing market confirmed the quickening pace of house price deflation last week. The Halifax reported that in the three months to May house prices had declined by 3.8% compared to a year ago. This shadowed the data released by the Nationwide the previous week. Earlier on in the week the Bank of England released the Mortgage Approvals figures. They fell from 58,000 from 63,000 in March, the lowest since comparable records began in 1999. Some economists are now predicting a housing market crash with prices coming off 25%.
Despite the above it was no surprise that the MPC Committee decided to keep rates on hold. Even if the Bank had cut it would not help the current predicament as Libor Rates (where Banks borrow funds at) range from 0.5% to 1.25% (for one year money) above the Banks base rate. This is forcing the lenders to increase mortgage rates so effectively monetary policy has become insignificant.
This week we have a whole host of economic data. Today we have the May Producer Price index and the BRC Retail sales. On Tuesday it’s the turn of manufacturing and industrial production. On Wednesday we have average earnings, which should remain subdued and ILO unemployment and claimant count, which could prove to be heading upwards. Finally on Thursday it’s back to the doom and gloom of the housing market with the release of the RICS house price survey.
Money market rates have recommenced their upward trend as short supply again predominates. The Big boys are again hording cash ahead of Q2 reporting date of June 30th to off set further sub-prime write offs. We anticipate that longer dated cash rates will advance even further this month before declining by mid-July.
All in all its not looking good for the economy, the time will come soon when the word ‘recession’ will be banded around and when that happens, I think we can say…Good bye Mr. Brown.