With unemployment down from 7.8% to 7.6%, with growth predictions for this year now 1.6%, up from 1.4% , and for next year pointing to 2.8%, rather than the 2.5% predicted only in August, Mark Carney, new Governor of the Bank of England has announced that the UK economy is in settled recovery mode.
The former hot shot Governor of the Bank of Canada, rated something of a coup for Chancellor George Osborne in bringing him to the Bank of England, reiterated that the Bank will not consider any action to improve our now familiar low interest rates – currently at 0.5% – until unemployment falls below 7%.
Figures suggest that the most likely time this threshold may be crossed is the end of 2016.
However, taking action on interest rates is an instrument used to control inflation. While overall inflation fell in October from 2.7% to 2.2%, the worry is that house price inflation is already rising quickly.
A focus of anxiety here is that a rise in interest rates will bring many who have bought property at the bottom of the recessionary market and at the floor of interest rates, to financial difficulties when mortgage costs rise with interest rates.
We’re not out of the forest yet but there does seem to be a visible path ahead.
The issue is whether or not we build for a sustainable future through investment and reinvestment – or go for the fragility of consumer led recovery. This actually rests upon low interest rates, discouraging saving and encouraging spending.The evidence is that this is the sort of recovery we are seeing.
Loans for house purchase rose 25.6% in August, year-on-year.The Nationwide index showed 5.0% house price inflation year-on-year – a three-year high. This last was not just the result of steeply rising house prices in London, although this was the major hot spot. There were others. In the second quarter, prices rose 3.2% quarter-on-quarter in Humberside and Yorkshire. At the heart of this national improvement is the role of low interest rates.
The detailed key findings of the independent Office of National Statistics for September 2013, the most recent set, are:
- The UK house price index level (184.9) has dropped back slightly from the peak last month (186.0). However, annual UK price growth has continued to increase due to larger falls in property prices in September 2012.
- In the 12 months to September 2013 UK house prices increased by 3.8%, up from a 3.7% increase in the 12 months to August 2013.
- House price growth remains stable across most of the UK, although prices in London are increasing faster than the UK average.
- The year-on-year increase reflected growth of 4.2% in England and 1.4% in Wales, offset by falls of 1.1% in Scotland and 1.5% in Northern Ireland.
- Annual house price increases in England were driven by rises in London (9.4%), the South East (4.0%) and Yorkshire and The Humber (3.0%).
- Excluding London and the South East, UK house prices increased by 1.4% in the 12 months to September 2013.
- On a seasonally adjusted basis, UK house prices were unchanged between August and September 2013.
- In September 2013, prices paid by first-time buyers were 5.3% higher on average than in September 2012. For owner-occupiers (existing owners), prices increased by 3.2% for the same period.
