Pressure for rate rise deckyy
Tuesday 25 April 1995
The dilemma facing Kenneth Clarke, the Chancellor, over whether to raise interest rates next week when he meets Eddie George, the Governor of the Bank of England, was sharpened still further yesterday by new figures showing the extreme fragility of the housing market.
Mr George is expected to advise that a rise in rates is needed to compensate for the effective loosening of monetary policy brought about by the recent fall in the value of the pound. However, the latest statistics from the building societies showed that the housing market is in severe difficulties, even although most mortgage lenders have not passed on the last rate rise in February.
The monthly average of new mortgage commitments - offers by the building societies to lend money to house-buyers - fell in the first three months of the year to 46,000 a month from an average of 50,000 in 1994. New commitments from building societies are a forward pointer to total turnover in the market which declined in March by 6 per cent on the year before. Since building societies are thought to be gaining market share on banks, the new figures for commitments would appear to point to a further decline in completions.
With a further slash in mortgage tax relief coming into effect this month, the market is on "a new downward leg", according to Ian Shepherdson, economist at HSBC Greenwell. This view was shared by other City analysts. "There remains no sign of relief for the distressed housing market," said Ciaran Barr, economist at Morgan Grenfell.
So far the majority of mortgage lenders have not passed on February's rise in base rates. However, a further rise is expected to force their hand, with rates rising for investors and borrowers. The margin between rates for borrowers and depositors is currently 2.0 per cent, down from 2.3 per cent a year ago. While critics maintain that there remains scope for the societies to squeeze the margin still further, borrowers should not rest their hopes on further relief on this front.
While the housing market continues to suffer, there was evidence that industrial investment is at last beginning to pick up.
In the first quarter of the year, manufacturers, who have been repaying debt during the recovery, borrowed more than £500m from British banks, excluding the distorting effect of the financing facility raised by Glaxo to pay for its bid for Wellcome.
This is estimated to have added about £6bn to provisional estimates for M4 lending in March released by the Bank of England. Stripping this out, M4 lending was down on February.
- 1 Windows 10: man updates PC, wakes up to find porn slideshow on repeat
- 2 The 'world's most beautiful vagina' has been debunked by science
- 3 John Green schools morning show hosts after awkward interview with Cara Delevingne
- 4 Supermodel Gisele Bundchen mocked for wearing a burka to avoid being seen visiting plastic surgeon in Paris
- 5 Bulletproof armadillo puts Texas man in hospital after shot bounces off hard shell
Whoopi Goldberg tells Cara Delevingne to suck it up: 'She's not famous. I'M famous'
John Green schools morning show hosts after awkward interview with Cara Delevingne
Supermodel Gisele Bundchen mocked for wearing a burka to avoid being seen visiting plastic surgeon in Paris
Bulletproof armadillo puts Texas man in hospital after shot bounces off hard shell
'Rowdy' Roddy Piper dies: Wrestling legend dies aged 61, according to reports
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
Is Britain really full up? Are migrants taking our jobs? Leading academic answers the most common anti-immigration claims
Calais Migrant Crisis: Deputy Mayor of Calais labels Cameron's use of 'swarm' as 'racist' and 'ignorant'
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...
£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...
£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...
£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...