Saturday, 30 December 2006

Data from UK and euro zone raise likelihood of further rate hikes

It looks like the Bank of England may not be done with interest rate hikes. Not with the continued house price increases reported by Reuters.

British house prices rose in December at their fastest annual rate in two years, the Nationwide Building Society said on Thursday, indicating higher borrowing costs have done little to cool the market this year.

The Nationwide house price index showed a 1.2 percent monthly rise this month, against a 1.4 percent rise in November, taking the annual increase up to 10.5 percent.

That was the first double digit annual growth since February last year and the strongest rate of growth since December 2004 when prices were 12.7 percent higher on a year earlier, the mortgage lender said...

"There are still few signs that the rate of house price growth will moderate in the very short term," said Fionnuala Earley, Nationwide group economist.

"The stock to sales ratio -- a good leading indicator of house prices -- has continued to increase, suggesting a few more months of firm price growth."

Indeed, Reuters also reports that mortgage approvals are still rising.

British mortgage approvals rose 9.1 percent in November from a year ago, a survey showed on Friday, boosting expectations of further interest rate rises and helping sterling to an eight-year high against the yen.

The British Bankers' Association said mortgage approvals totalled 77,788 last month. It also revised up its figure for underlying new mortgage lending reported last week to 6.7 billion pounds ($13.13 billion) from what was already a record high of 6.5 billion...

The Bank of England said mortgage equity withdrawal rose to 11.8 billion pounds in the third quarter as Britons capitalised on rising house prices to refinance home loans for other spending.

And there could be more rate hikes from the European Central Bank as well. Reuters reports:

The case for more euro zone rate hikes got a boost from stronger than expected November money supply data on Friday and from comments on Thursday by ECB Governing Council member Yves Mersch, who said rates remain low in historical terms...

Annual euro zone M3 growth rate jumped to 9.3 percent in November from 8.5 percent the previous month and above a consensus forecast of 8.6 percent.

One of the main concerns in Europe, however, remains German consumer spending. Bloomberg has the latest reading on German consumer confidence.

Consumer confidence in Germany, Europe's largest economy, fell for a second month on concern increases in sales taxes and health-insurance costs will reduce household incomes.

GfK AG's confidence index for January, based on a survey of about 2,000 people, fell to 8.7 from a revised 9.2 in December, the Nuremberg-based market research company said today. The index reached a five-year high of 9.3 in November.

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