Hopes that a sustained rebound in the housing market would feed through to consumer spending faded yesterday, as figures showed a drop in retail sales and new mortgage approvals.
The volume of high street sales fell for the third month in a row in March, according to a survey by the CBI, the employers' group. A balance of 16 per cent of retailers said sales were lower than a year ago, dashing hopes in February's survey of an improvement in March.
The survey revealed sluggish sales of clothing and footwear as the recent cold weather kept shoppers from buying new season ranges. Furniture and carpets showed the biggest improvement in fortunes after the pick-up in the housing market stimulated demand for "big-ticket" items.
But hopes of a sustained recovery in the housing market slipped as Bank of England figures showed mortgage approvals fell in February for the first time since the end of 2004. A total of 115,000 new home loans were approved for people buying property during February, well down on the January total of 121,000.
Kelvin Davidson, a property economist at Capital Economics, said: "The sustained rise in mortgage demand seen since November 2004 seems to have come to an end."
James Knightley, an economist at ING Financial Markets, said the fall in mortgage demand and retail sales pointed to weaker consumer activity in the coming months. "This is likely to be intensified as higher council tax and utility bills start to bite," he said.
Most economists believe the next move in interest rates will be down, although Tuesday's testimony to MPs by Mervyn King, the Bank's Governor, indicated rates were on hold in the near future. Howard Archer, the chief UK economist at Global Insight, said: "For now at least, the Bank will be very wary that a trimming of rates could excessively stimulate the housing market and risk sending prices markedly higher."
The final version of GDP data for the final quarter of last year showed households dug into their savings to fund a pre-Christmas spending spree. The savings ratio fell to 4.8 per cent from 5.5 per cent in the third quarter. Jonathan Loynes, the chief European economist at Capital Economics, said: "This adds to doubts over whether the spending pick-up will be sustained and, indeed, spending looks to have slowed sharply in the first quarter [of 2006]."
GDP growth was left unrevised at 0.6 per cent on the quarter and 1.8 per cent on the year, as expected. For 2005 as a whole, the economy expanded by 1.8 per cent, its weakest for 13 years.Reuse content