It seems to be a case of all systems go for the UK economy right now, with solid economic growth, booming house prices and low inflation.
There was news today from the Office of National Statistics (ONS) that the UK consumer price index (CPI) fell to 1.5% year-on-year in May from 1.8% in the previous month making it the lowest figure since May 2009. Expectations were for the CPI to come in around 1.7% and forecasters are now predicting that the figure could drop as low as 1% later in the year. The super market price war and a reduction in transport costs, notably air fares, have helped to bring down the headline figure.
Inflation has been falling since the autumn, helped by the stronger pound and lower commodity prices. The Bank of England has a 2% inflation target.
On top of the inflation news the ONS said that house price increases in the UK rose by 9.9% in April compared with the same month a year ago and the fastest rate for nearly four years. In London house prices were up 18.7% and excluding London and the South East ,the national increase was 6.3% higher than at the same time in 2013.
The ONS also said that Factory gate inflation increased 0.5% year-on-year in May, compared with 0.6% in April and below expectations of 0.7%. in April FGI was 0.7% year on year. The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 0.9% between April and May.
So from a Bank of England perspective, a potential housing boom and bust remains the worry whilst general inflation remains subdued. This means that the Bank is under no real pressure to increase interest rates immediately but no doubt they will be pressuring lenders to curtail mortgages and the amount of money which can be borrowed. The Bank of England base rate is currently at a record low of 0.5% and expectations are that rates will hit 1.25%-1.5% next year and 2%-2.5% in 2016.
As ever the British obsession with property seems to be skewing the perception of economic recovery.
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.
by contrarianuk
Booming UK house prices but little general inflation – what now for the Bank of England?
Jun 17, 2014 at 10:42 am in Market Commentary by contrarianuk
It seems to be a case of all systems go for the UK economy right now, with solid economic growth, booming house prices and low inflation.
There was news today from the Office of National Statistics (ONS) that the UK consumer price index (CPI) fell to 1.5% year-on-year in May from 1.8% in the previous month making it the lowest figure since May 2009. Expectations were for the CPI to come in around 1.7% and forecasters are now predicting that the figure could drop as low as 1% later in the year. The super market price war and a reduction in transport costs, notably air fares, have helped to bring down the headline figure.
Inflation has been falling since the autumn, helped by the stronger pound and lower commodity prices. The Bank of England has a 2% inflation target.
On top of the inflation news the ONS said that house price increases in the UK rose by 9.9% in April compared with the same month a year ago and the fastest rate for nearly four years. In London house prices were up 18.7% and excluding London and the South East ,the national increase was 6.3% higher than at the same time in 2013.
The ONS also said that Factory gate inflation increased 0.5% year-on-year in May, compared with 0.6% in April and below expectations of 0.7%. in April FGI was 0.7% year on year. The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 0.9% between April and May.
So from a Bank of England perspective, a potential housing boom and bust remains the worry whilst general inflation remains subdued. This means that the Bank is under no real pressure to increase interest rates immediately but no doubt they will be pressuring lenders to curtail mortgages and the amount of money which can be borrowed. The Bank of England base rate is currently at a record low of 0.5% and expectations are that rates will hit 1.25%-1.5% next year and 2%-2.5% in 2016.
As ever the British obsession with property seems to be skewing the perception of economic recovery.
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.