The British economy, after contracting for six consecutive quarters on the back of the global recession that hit the economy last year, is now showing signs of recovery which provide evidence that the economy will mostly emerge from the downturn in the last quarter of the current year.
Interestingly, the housing market that suffered tremendously after the bubble burst has shown remarkable improvement as the economy began to recover from the worst recession since WWII. In November, U.K. house prices rose for a seventh month to 0.5% on the month and 2.7% on the year. Also, mortgage approvals climbed to 19-month high in October.
Today, Nationwide House Prices seasonally adjusted for December in the United Kingdom came in at 0.4%, lower than the previous 0.5%, yet higher than forecasts of 0.3%. On the year, the non-seasonally-adjusted reading jumped to 5.9%, above both preceding and expectations of 2.7% and 5.6% respectively.
Perhaps the main determinant of the recovery for the housing market is consumer spending and credit conditions. Household started to purchase houses again after confidence was restored on the vivid signs of recovery, especially in the third quarter when the economy eased the pace of contraction to 0.2% from 0.6% in the second quarter.
Although many households lost their income or part of it in the massive terminations wave that followed the start of the downfall, but unemployment slowed down in October to 7.9% from 7.8%, marking the slowest pace since 2008.
On the other hand, bank's credit conditions ameliorated thanks to the financial assistance by the BoE and bailouts by the government. Mervyn King and his economic team slashed the interest rate to 0.5% and introduced 200 billion pounds to purchase gilts.
However, some banks are still unable to meet the lending requirements set by the BoE. For instance, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, the two bailed out banks by the government, are still below the lending rate set by the government.
The housing market may face difficulties in the new year as the government's budget deficit is swelling and the BoE may withdraw stimulus and hike interest rate, thereby discouraging mortgage lending. Some analysts are warning of drawback as housing prices are relying on temporary factors.
Kate Barker, Bank of England policy maker, mentioned in December that the lift up in U.K. house prices is unexpected and she anticipated the recovery may pause in 2010.
Today is the last day in 2009 that was a hectic year full of turbulences, but it seems from the data released from October to December that the fourth quarter may signal expansion.
With regard to growth outlook, the latest forecasts from the Confederation of British Industry refer that growth in 2010 will be 1.2% and 2.5% in 2011. Hence, recovery is expected to be sluggish and volatility is predicted since there might be a change in the monetary and fiscal measures.
Source
Sunday, February 28, 2010
Monday, February 15, 2010
UK economy contracts by 0.2pc in third quarter as recession drags on
The UK's loss of output since the slump began last year now stands at 6pc - the biggest decline since records began in 1955 and surpassing the 6pc drop in output recorded between the second quarter of 1979 and the first quarter of 1981.
The 0.2pc fall is less than the 0.4pc first estimated, which was itself revised upwards by the Office for National Statistics to 0.3pc in November.
Philip Shaw of Investec told Reuters: "The headline figure is disappointing. We had hoped for a slightly punchier number and we still find it hard to believe fully that the economy was contracting in the third quarter."
The key points were the biggest quarterly rise in construction output since the third quarter of 2003, and a household saving ratio - the share of income put aside by families - of 8.6pc, which is the highest since first quarter of 1998.
Jonathan Loynes of Captial Economics said: "The sharp rise in the household saving ratio to 8.6pc might suggest that the process of household deleveraging is further advanced than previously thought."
Sterling fell briefly to a session low against the dollar of $1.6024 after the figures came out, while the FTSE 100 edged higher to trade up 40 points at 5333.
The ONS said service sector output fell by 0.2pc in the period, mainly due to continued weakness among financial services firms such as banks and insurers.
Output from production industries fell by 0.9pc on the quarter - with a 0.2pc decline for manufacturers - although there were some bright spots such as a 0.7pc output rise from hotels and catering.
Source
The 0.2pc fall is less than the 0.4pc first estimated, which was itself revised upwards by the Office for National Statistics to 0.3pc in November.
Philip Shaw of Investec told Reuters: "The headline figure is disappointing. We had hoped for a slightly punchier number and we still find it hard to believe fully that the economy was contracting in the third quarter."
The key points were the biggest quarterly rise in construction output since the third quarter of 2003, and a household saving ratio - the share of income put aside by families - of 8.6pc, which is the highest since first quarter of 1998.
Jonathan Loynes of Captial Economics said: "The sharp rise in the household saving ratio to 8.6pc might suggest that the process of household deleveraging is further advanced than previously thought."
Sterling fell briefly to a session low against the dollar of $1.6024 after the figures came out, while the FTSE 100 edged higher to trade up 40 points at 5333.
The ONS said service sector output fell by 0.2pc in the period, mainly due to continued weakness among financial services firms such as banks and insurers.
Output from production industries fell by 0.9pc on the quarter - with a 0.2pc decline for manufacturers - although there were some bright spots such as a 0.7pc output rise from hotels and catering.
Source
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