Today I feel sorry for whoever has to explain this at the Bank of England morning meeting.
“Annual house price growth remained below 1% for the 11th
month in a row in October, at 0.4%. Average prices rose by
around £800 over the last 12 months, a significant slowing
compared with recent years – for example, in the same
period to October 2016, prices increased by £9,100.”
That was from the Nationwide Building Society which has brought news to spoil a central banker’s breakfast. After all they have done their best.
“Moreover, mortgage rates remain close to all-time lows –
more than 95% of borrowers have opted for fixed rate deals
in recent quarters, around half of which have opted to fix for five years.”
The irony here is that they have made their own Bank Rate changes pretty impotent. I recall in the early days of this decade noting that nearly all mortgages in Portugal were fixed-rate ones and thinking we were different. Well not any more!
But unlike Governor Carney I consider this to be a good news story because of this bit.
the unemployment rate remains close to 40 year lows and real earnings growth (i.e. after taking account of inflation) is close to levels prevailing before the financial crisis.
So houses are becoming more affordable in general terms and the Nationwide is beginning to pick this up as its earnings to house price ratio has fallen from 5.2 to 5. Although the falls are concentrated in London ( from 10 to 8.9) and the outer London area ( 7.2 to 6.7). Both Northern Ireland ( now 4) and the West Midlands ( now 4.7) have seen small rises.
We can look at the wages position in more detail because this morning has brought the results of the annual ASHE survey.
Median weekly earnings for full-time employees reached £585 in April 2019, an increase of 2.9% since April 2018….In real terms (after adjusting for inflation), median full-time employee earnings increased by 0.9% in the year to April 2019.
So we see something of a turning in the situation for the better although sadly the situation for real wages is not that good, as it relies on the Imputed Rent driven CPIH measure of inflation. So maybe we had 0.5% growth in real wages.
Even using the fantasy driven inflation measure we are still worse off than we once were.
Median weekly earnings in real terms are still 2.9% lower (£18 lower) than the peak in 2008 of £603 in 2019 prices.
These numbers conceal wide regional variations as highlighted here.
In April 2019, the City of London had the highest gross weekly earnings for full-time employees (£1,052) and Newark and Sherwood had the lowest (£431).
Also the way to get a pay rise was to change jobs.
In 2019, the difference in growth in earnings for full-time employees who changed jobs since April 2018 (8.0%) compared with those who stayed in the same job (1.6%) was high, suggesting stronger upward pressure on wages compared with other years.
Tucked away in the detail was some good news for part-time workers.
Median weekly earnings for part-time jobs increased at a greater rate. In 2019, earnings increased by 5.2% in nominal terms, which translates to a 3.1% increase in real terms. The median weekly earnings for part-time employee jobs of £197 is 6.5% higher than in 2008 in real terms.
It seems that the changes in the national minimum wage have had a positive impact here.
Meanwhile far from everyone has seen a rise.
The proportion of employees experiencing a pay freeze or a decrease in earnings (in real terms) in 2019 (35.7%) is lower than in 2018 (43.3%) and in 2011 (relative to 2010) when it was 60.5%.
From the Bank of England today.
Mortgage market indicators point to continued stability in the market. Net mortgage borrowing by households was little changed at £3.8 billion in September. The stability in the monthly flows has left the annual growth rate unchanged at 3.2%. Growth rates have now remained close to this figure for the past three years. Mortgage approvals for house purchase (an indicator for future lending) were also broadly unchanged in September, at 66,000, and remained within the narrow range seen over the past three years.
As you can see this was a case of what Talking Heads would call.
Same as it ever was
Same as it ever was
Same as it ever was
Same as it ever was
Although there is a nuance in that the longer-term objective of the Bank of England is still in play. The true purpose of the Funding for Lending Scheme of the summer of 2012 was to get net mortgage credit consistently positive. That was achieved as there have been no monthly declines since ( unlike in 2010 and 2011) and over time the amount has risen. Nothing like the £9 billion pluses of 2007 but much higher than post credit crunch.
The credit impulse provided by the Funding for Lending Scheme was always likely to leak into here.
The annual growth rate of consumer credit was 6.0% in September. This growth rate has now been falling steadily for nearly three years. Revisions to the data this month, however, mean that the annual growth rate has been revised up slightly over the past two and a half years.
Let me give you an example of how the rate of consumer credit growth has been falling from last month’s update.
The annual growth rate of consumer credit continued to slow in August, falling to 5.4%.
The “revised up slightly” means it is now being reported as 6.1%. This is really poor as we can all make mistakes but this is a big deal and needs a full explanation as something has gone wrong enough on a scale to change the narrative.
Assuming this number is correct here is the detail for September itself.
The extra amount borrowed by consumers in order to buy goods and services fell slightly to £0.8 billion in September, and for the second month in a row was below £1.1 billion, the average since July 2018.
There was some good news in this release for the UK economy.
Total money holdings in September rose by £10.9 billion, broadly flat on the month, and remaining above the average of the past 6 months.
The amount of money held by households rose by £5.5 billion in September, primarily driven by increased holdings of interest bearing sight deposits. NIOFC’s money holdings rose by £4.3 billion, while the amount held by PNFCs rose by £1.0 billion.
I am a little unclear how a rise of just under £11 billion is “broadly flat”! But anyway this continues the improvement in the annual growth rate to 3.9% as opposed to the 1.8% of both January and May. Individual months can be erratic but we seem to have turned higher as a trend.
There have been several bits of good news for the UK economy today. The first is the confirmation of the improvement in the trajectory for real wages and some rather good growth for those working part-time. This feeds into the next bit which is the way that houses and flats are slowly becoming more affordable albeit that much of the progress has been in London and its environs. Looking ahead we see that the improvement in broad money growth is hopeful for the early part of 2021.
The higher trajectory for consumer credit growth is mixed,however. Whilst it will have provided a boost it is back to the age old UK economic problem of borrowing on credit and then wondering about the trade gap. It is especially poor that the Bank of England has been unable to count the numbers correctly. Also it is time for my regular reminder that the credit easing policies were supposed to boost lending to smaller businesses. How is that going?
while the growth rate of borrowing by SMEs rose slightly to 1.0%.
Woeful and a clear misrepresentation of what they were really up to.
I later discovered that the Bank of England revised Consumer Credit higher by some £6.1 billion in August meaning that as of the end of September it was £225.1 billion.