Hopes for rate cut dashed as house prices begin recovery
The odds on the Bank of England cutting interest rates for the second time in four months lengthened yesterday after the release of a raft of better than expected economic data.
The latest snapshot of the housing market by leading lender Nationwide showed prices jumped 1.3 per cent, the fastest rate in 15 months, bringing the annual rate of house price inflation to 3.3 per cent.
The recovery in house prices follows the Bank of England Monetary Policy Committee’s decision to cut a quarter point off interest rates in August, which Bank governor Mervyn King famously voted against, leaving rates at their current level of 4.5 per cent.
Meanwhile the latest CBI distributive trends reported that the retail environment has improved marginally. The index is now at -18 points compared to September’s low of -24 points. However, this is still the third worst score since the index began in October 1993 and amounts to nothing more than a modest pick-up. The best news came from the manufacturing sector, which grew at the fastest pace this year last month.
Export orders also hit a 15-month high. PMI climbed to 51.7 in October from 51.5 in the previous month. The improvement was only marginal, but it beat analysts’ forecasts. It seems that manufacturers are still not passing on the costs of higher oil prices to customers. Input prices rose to a seven month high, but the output prices index rose only modestly.
ING Financial Markets economist James Knightly commented: “There were mixed messages really, but this does signal that we’ll get nothing from the Bank of England.”
Capital Economics’s Jonathan Loynes said: “That data still isn’t very positive, but it’s not soft enough for a bandwagon to have formed to force through a cut.”