This morning the Monetary Policy Committee meets to make its policy decision although of course us plebs and mere mortals are not told until 12pm tomorrow. What could go wrong from this “improvement”. However what we have is an extraordinarily lax monetary policy driven by yet more forecasting errors by the Bank of England. In a post EU Leave vote panic it cut the official Bank Rate to 0.25% ( so below what Governor Mark Carney had told us was the 0.5% lower bound for it) announced £60 billion of extra UK Gilt buying QE and of course some £10 billion of Corporate Bond QE. The latter was particularly problematic as you see UK companies are often international and thereby issue in Euros and US Dollars meaning that as I pointed out at the time the Bank of England would be a big fish in a small pond. So it bent its criteria.
For example, a company headquartered outside of the UK but employing hundreds of people in the UK and generating sales of £20m in the UK would be considered to make a material contribution to the UK economy.
All of these moves were house price favourable but there was another subsidy provided for the banks that as ever was badged as being for small business lending but was in fact likely to find its way into the housing market. This is the Term Funding Scheme.
The Term Funding Scheme (TFS) is designed to reinforce the transmission of Bank Rate cuts to those interest rates actually faced by households and businesses by providing term funding to banks at rates close to Bank Rate
So far it has provided some £31.37 billion of cheap funding to UK banks, which no doubt will in a “surprise” find its way to the housing market.
Yesterday’s money and credit report from the Bank of England kept us in touch with this.
Broad money, M4 excluding intermediate other financial corporations, increased by £10.9 billion in December (Table A) with positive flows across all sectors.
So the monetary taps remain open with the annual rate of growth of broad money or M4 at 7.2%. Although the amount for households slowed to an annual rate of 5.8% so as time goes by we seem set to see a reduction in the rate of retail sales growth and maybe funds for the housing market. However as we stand the flow continues.
Lending secured on dwellings rose by £3.8 billion in December, the highest flow since March 2016.
Also there seems to be something of a continuing pipeline.
Approvals of loans secured on dwellings for remortgaging continued to rise and at 47,721 were higher than the previous six-month average . Approvals for house purchase were 67,898, broadly in line with recent months.
I don’t blame people for taking advantage of current mortgage deals do you?
This continues to be at a high level although there was a dip in December.
Net flows of consumer credit slowed in December to £1.0 billion.
It is true that the monthly growth rate slowed to 0.5% but of course even that would have us with an annual growth rate above 6% but the annual growth rate in unsecured credit was 10.6%. Of this credit card borrowing rose at 8.7% and other unsecured credit rose at 11.6%. I posed a challenge to the Bank of England which I note has been picked up by the Best of Twitter in City-AM today.
Is Andy Haldane available to explain how his Sledgehammer QE has pushed the annual growth rate of UK unsecured credit to 10.6%?
Still I am sure that money flowed to UK businesses.
Loans to non-financial businesses decreased by £2.1 billion in December, compared to the previous six-month average increase of £1.2 billion
Oh well perhaps not then! The Bank of England has tucked away the numbers for smaller businesses after so many disappointments, excuse me “improvements” but it did rise by the grand sum of £200 million. Not a lot when you look at consumer credit is it?
Nationwide House Price Index
This morning’s update has told us this.
0.2% month-on-month rise in January……Annual house price growth broadly stable at 4.3%.
This represents a slight slowing in annual terms from the 4.5% recorded in 2016 overall which intriguingly was the same as for 2015. There was an interesting addendum to the 2016 numbers though.
Price growth in London ended the year below UK average for first time in 8 years.
Can foreign buyers rescue it one more time? I am not so sure as I have pointed out before although the fact that Bitcoin has been rallying again ( US $977 as I type this) means that money is back flowing out of China. The first time buyer house price to earnings ratio in London has dipped slightly but to a rather extraordinary 10.1. The number for the whole country at 5.3 is just below the all time high of 5.4 which came of course just before the credit crunch hit.
Stamp Duty Land Tax
As I have been pointing out regularly in my updates on the UK public finances tax revenues from the housing market have been on something of a tear. Oliver Knight puts it like this.
Residential SDLT receipts in Q4 2016 (c.£2.4bn) nearly matched the £2.8bn collected by HMRC in 2009 as a whole…
The boom continued according to the official HMRC data.
The estimated receipts from residential transactions in Quarter 4 of 2016 are 20% higher than Quarter 4 of 2015. Financial year-to-date for 2016-17, the estimated receipts are 17% higher than the same period in 2015-16.
The additional rate for second homes to capture buy to let lending has led to a revenue boomlet so far as well.
So far in 2016-17 there have been 149,400 transactions of additional properties accounting for £2,319m in total SDLT receipts, of which £1,190m is attributed to the additional 3% element.
Back in 2009 some £2.8 billion was collected from residential transactions whereas last year some £8.3 billion was collected. That is quite a windfall for HM Treasury and another reason for the UK establishment to want this to continue. Also non-residential stamp Duty has been rising too making the total last year some £11.44 billion.
The Bank of England has deployed pretty much every policy measure it could to help the UK housing market. However it is now at something of an impasse because the rise in inflation should block it for any further easing in 2017. Actually the debate should be around an exit from all the easing but of course it has too much of its thin thread of remaining credibility tied up in the “Sledgehammer” move of August 2016.
Thus it will be meeting today and trying to be positive. As to the housing market I expect the rate of house price growth to dip and soon it will be below consumer inflation. I expect it to go further and see some declines in 2017 especially as we see real wages dip. I noted this earlier which confirms my view, after all anyone who used to watch Stingray or Thunderbirds as a child knows what happens next after a description like this. From Russell Quirk.
Me on the @AskNationwide House Price Index via @ShareRadioUK : ‘A structurally sound market despite all that 2016 threw at it. Bullet proof’