Just going back briefly to my Anyone Feel Like Hiking post – where I was speculating that the UK housing bubble might already have been effectively ‘burst’ by earlier interest rate rises which had still to work their way through the system – figures published yesterday by the British Bankers’ Association seem to suggest that the UK housing market is slowing down. In fact the number of mortgages approved last month fell by an impressive 20 per cent compared with the same period last year.
Despite news in today that UK GDP growth accelerated to an annual rate of 3.7% in the second quarter, there are other signs that the UK economy may well have been slowing since June, among them this low consumer confidence reading.
According to Bloomberg most of the economists they survey are apparently still forecasting a continuing series of rate rises. I am not so sure, and neither is BoE Chief Economist Charles Bean:
“It was clear that 3.5 per cent was clearly quite low and we are now back in the sort of territory that you might think of as a more normal level,” Mr Bean said in an interview with the Irish News yesterday. “It (the natural rate) might be a bit higher than we are. It will be a case of seeing what comes out of the data as they come in.”
I think Mr Bean’s reticence (mind the pun!) and pragmatism is worthy of note. No one really knows what will be the impact of the housing slowdown, and it would be better to keep your options open downwards as well as upwards while you wait and see how the situation evolves. But lets stick my neck out a little: it wouldn’t surprise me if we see no more rate rises this year, and possibly even a first reduction in rates as we get into the later months. My feeling has been all along that Mervyn King’s strategy in stealthily raising the rates in the first place was in order to be in a position to drop them again rapidly should conditions demand this.