U.K. mortgage approvals fell in May and construction shrank at the fastest rate in 2 1/2 years in June, adding to signs the housing market is slowing amid growing concern over the economic outlook.
Lenders granted 51,098 loans to buy homes, compared with 51,627 the previous month, the Bank of England said today in London. A gauge of building output based on a survey fell to 48.2 from 54.4 in May, a separate report by Markit and the Chartered Institute of Purchasing and Supply showed.
The figures add to the case for Bank of England policy makers to increase stimulus when they meet this week. An index yesterday showed factory output shrank for a second month in June, suggesting the economy remains mired in recession. Demand for homes has fallen as Europe’s debt turmoil casts a shadow over Britain’s economic prospects and banks curb credit, with Nationwide Building Society reporting last week that house prices fell 0.6 percent between May and June.
“Household lending has been depressed for quite a long time and there’s no evidence of improvement on the corporate side,” said David Tinsley, an economist at BNP Paribas SA in London and a former central bank official. Economic growth in the second quarter “could well be negative. It would be very strange if the Bank of England did nothing this week.”
Economists predicted that mortgage approvals would drop to 50,000, based on the median forecast of 16 economists in Bloomberg survey. Approvals are still running at half the monthly average seen in the decade to 2007, before the financial crisis struck.
The Bank of England and the Treasury will announce within weeks details of a new program to get the flow of credit moving again. A central bank survey taken in May showed households and companies face significantly tighter borrowing terms in the third quarter as lenders pass on higher funding costs.
Net mortgage lending was 563 million pounds ($883 million), down from 1.05 billion pounds in April and the lowest since September last year. Net consumer credit rose to 732 million pounds from 379 million pounds in April. Net borrowing on credit cards rose by just 70 million pounds.
In a separate report, the central bank said M4 money supply fell 0.1 percent in May from the previous month and 4.1 from a year earlier.
The Bank of England will probably raise its target for asset purchases by 50 billion pounds to 375 billion pounds, according to the median estimate of 41 economists in a Bloomberg News survey. Economists in a separate poll forecast officials will leave the benchmark rate at a record low of 0.5 percent. The bank will announce the decision at noon in London on July 5.
In Australia today, the central bank kept interest rates unchanged at a 2 1/2-year low, saying its recent reductions in borrowing costs will help the economy weather a more subdued global outlook.
Elsewhere in the Asia-Pacific region, China’s non- manufacturing industries expanded at a faster pace in June as the property market and new orders picked up, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing.
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