Demanding Debt
Demanding Debt
As expected, figures released by the Bank of England last week showed that the recent downward trend in the housing market is continuing. The number of mortgage approvals declined in February from 74,000 to 73,000 whilst mortgage lending in total edged up slightly from £7.398bln to £7.464bln. Equity release fell markedly from £10.839bln in Quarter 3 to £7.281bln in Quarter 4. The real surprise though was the jump in unsecured personal debt from £0.879bln in January to £2.353bln in February. It is possible that consumers borrowed what they could in anticipation of increases in rates, more stringent lending terms and cut back in the amount of credit available. It has been suggested that some consumers are facing little choice but to borrow either as a result of constriction in mortgage funding or, more worryingly, just to make ends meet. Both reasons if true are worrying but the latter has a very short life-span and presages a significant jump in insolvencies in the near future and a big fall in demand and consumption.
This week (Wednesday) sees the release of February’s industrial production and manufacturing output numbers. The consensus amongst analysts is for a marginal increase in both of 0.1% for the month giving annual rises of 1.2% and 1.5% respectively. The Bank of England announces the result of their deliberations and Base Rate on Thursday and it is now likely that Base Rate will be cut from 5.25% to 5.00%. The policy “hawks” could though point to the surge in consumer credit and make a case for keeping rates on hold until the reason for the biggest jump in 5 years is fully understood. Furthermore, energy and commodity prices are still at near record levels and food costs will also rise further which may convince enough of the Committee to keep Base Rate where it is for now. However, if the hawks do carry the day then Base Rate is almost certain to come down in May in an attempt to moderate the deceleration in the housing market.