Analysts say downward trend in mortgage lending reflects high unemployment and low levels of consumer confidence
Fresh signs of a slowdown in the UK economy surfaced today with news of a drop in mortgage approvals, weak consumer credit and a decline in output from the service sector. Data from the Bank of England showed approvals for new home loans dipped to their lowest level in six months in August.
The dip from 48,300 in July to 47,400 last month was the fourth fall in a row and chimed with other recent evidence that demand for property has weakened since the start of 2010. Threadneedle Street also reported that unsecured borrowing fell by £0.1bn, while the Office for National Statistics said activity in the services sector dipped by 0.2% in July.
City analysts said the downward trend in mortgage lending reflected high unemployment and low levels of consumer confidence, while the data for the services sector indicated that growth was slowing after its strong performance in the second quarter of 2010.
Marc Ostwald, analyst at Monument Securities, said the loss of momentum in the services sector meant there had been a “really quite weak start to that particularly very important component of Q3 GDP, which will require a bit of substantial recovery in the August and September data if we are going to have a decent contribution from services to Q3 GDP”.
Howard Archer, UK economist at IHS Global Insight said the drop in mortgage “fuels our suspicion that house prices will fall back by some 10% over the latter months of 2010 and during 2011″.
“High unemployment, muted wage growth, low consumer confidence, difficulties in getting a mortgage, a housing supply and demand balance, currently firmly in favour of buyers, and a house price and earnings ratio above long-term norms comprise an unhappy set of factors for house prices. Low interest rates and the current stamp duty holiday for first-time buyers on all properties costing up to £250,000 only partially offset these adverse factors.”
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