Thursday, June 28, 2007
Nationwide seals the rate hike
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

If there were any doubts about the Bank of England's decision next week, Nationwide's announcement of a 1.1% rise in house prices last month has probably removed them. This compared with a 0.5% increase in May. The annual rate increased from 10.3% to 11.1%. More details here.

Comments

Hi

I think you are right, about it sealing the rate rise. However IMVHO, this is probably a lumpy number (and remember Nationwide run their data 15th to 15th), and it is approvals, rather than the "live" market.

I think the Halifax number (1s-30th), will give a better picture, however that isn't out until next thursday, so a bit late.

FWIW I wouldn't be surprised is Haifax shows a small negative number.

But that said, a blimin strong number from Nationwide. And I look forward to seeing their 2Q07 regional breakdown.


Posted by: kingofnowhere at June 28, 2007 01:35 PM

DAvid

In Chart 4 at foot of N'Wide report - 3 months on previous 3 months % change - pls note the slowdown from 5% pq to below 0.5% pq by 0805. That is the slowdown to which I have referred. Had the IR not been cut it would have gone -ve by Q4 or definitely 2006. And stayed there.

Jonathan

Posted by: Jonathan Davis at June 28, 2007 07:51 PM

I don't want to start this one again but I disagree with that, because house prices operate with a lag on approvals and, as I said before, approvals were recovering long before the cut. What I would accept is that if the Bank had followed through with further cuts in 2004, or kept people thinking further hikes were in order, it could have kept a lid on the market. It didn't do so because at the time inflation was low and so, in its view, was the inflation outlook. Expectations of rate cuts started to build. Charlie Bean talks about the August 2005 rate cut on the Bank's website: http://www.bankofengland.co.uk/publications/other/monetary/treasurycommittee/appoint/bean_june07.pdf

Posted by: David Smith at June 28, 2007 10:47 PM

Hi Jonathan/David

I am not going to enter the debate, apart from this post, because taking over every blog, with house prices is a bit of a pain, especially to people whose lives don't revolve around HPi

Anyway, looking a HPI and approvals I would point here (DS your search doesn't work, So I had to trawl)

http://www.economicsuk.com/discussion/viewtopic.php?t=2&postdays=0&postorder=asc&start=165

Read the thread on that page

Then read Sandid's link

http://www.graphicinvestor.com/econo/UK/MORTGAGES/NATIONWIDE/Nationwide%20Leading%20Indicator.htm

I think that should explain enough about Approvals and HPI and there relationship

Anyway IMVHO, to cause HPI to fall (not to crash), then the BOE needed to raise rates in Feb 2005, which would have put a lid on approvals, they didn't and the market recovered. Even if the MPC didn't cut rates in Aug 05, HPI would still be running away. It was the act of not increasing borrowing (From Nov 04) that was the cause of HPI.

Posted by: kingofnowhere at June 29, 2007 10:54 AM

The Government should assist the BoE by removing the tax breaks provided to those who invest in residential property. And yes, the BoE made a severe mistake when they cut IRs - they were giving out the wrong signals - something I pointed out to their agents at the time. I suggest that the BoE should hike by 0.5% in July.

Posted by: Mr Naresh Radson at June 29, 2007 05:17 PM

Dear David,
I just wonder whether the MPC will hold fire next week also in line of the increasing terror threat and its possible impact on the economy. (I am not arguing that there is a history or causality here, but as we know, following the July 2005 attacks, and with inflation rising, they decided to cut from 4.75% in July to 4.5% in August).
Many thanks.

Posted by: Costas Milas at June 30, 2007 08:55 PM

Apologies; it should read "also in light"
Many thanks.

Posted by: Costas Milas at June 30, 2007 08:57 PM

Good point. It may well impact on their decision, particularly if there are other terrorist events over the next few days.

Posted by: David Smith at July 1, 2007 09:18 AM

jonathan davis sold his property to rent in 2002 thinking prices were crashing - he wanted to speculate to buy back in cheaper later and sadly mistimed the market. he hasnt shut up about an impending crash ever since and is getting increasingly desperate. dont know why anyone listens to him.

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