DATAWATCH UK data reinforce view interest rates have peaked
Thursday, November 18, 2004 11:43:26 AM
afxpress.com
LONDON (AFX) - The prospect of lower interest rates next year increased today as a raft of UK data showed further weakness in the consumer sector
While official figures showed high street spending falling in October for the first time since July, a series of releases from industry bodies suggested the housing market is moderating in the wake of higher borrowing costs
"Today's data increase the chances that interest rates have peaked but more importantly, they open the door further for rate cuts next year as the consumer and housing downturns gather pace," said Vicky Redwood, UK economist at Capital Economics
The Bank of England's rate-setting Monetary Policy Committee has lifted its key repo rate by a quarter point on five occasions to 4.75 pct over the last year, in an attempt to rein in inflationary pressures stemming primarily from rampant consumer spending
The biggest evidence suggesting that the MPC's strategy of slowing consumption growth emerged in this morning's October retail sales data
The office of National Statistics said retail sales during the month fell by 0.4 pct, double the expectations of a 0.2 pct drop. In September, retail sales had increased by 1.1 pct
It also noted that the three-monthly growth rate was 1.2 pct, down from the first half average of 1.8 pct
"This should take the pressure off the MPC, which can now afford to wait to assess the strength of retail sales over the crucial Christmas period, and moreover, the strength of economic activity in the fourth quarter," said Robyn Barnett, economist at UBS
She cautioned that if consumer spending proves to be relatively resilient despite the cooling housing market, then the MPC may have to raise rates a little further
The housing market remains crucial for the future direction of interest rates, analysts added, and today's data raised the prospect of house price declines
A leading industry body reported today that UK mortgage lending fell for the third month running in October to 23.3 bln stg, down 8 pct from September
The Council of Mortgage Lenders also said the value of loans for house purchases slumped to 10.3 bln stg - the lowest since February, which is traditionally a quiet month
John Butler, economist at HSBC, said the CML's findings reveal a sharp slowdown occurring in the housing market to levels last seen in 2001, before the MPC began cutting rates in the wake of the global economic slowdown and the terrorist attacks on the US
Coupled with the retail sales data, Butler thinks a consumer slowdown is taking place "rather than a collapse" |
