UK Mortgage Lending, Approvals and Interest-Rates seem to be ignoring the Bank of England

by Shaun Richards

Today we can shift focus to the Bank of England and the UK economy as we look at the latest monetary data. First we can reflect on this one of its policymakers on Friday.

“To me, the data was still showing very robust expectations and I thought it was important to dampen those expectations using a 50 basis point increase,” she said in an online video discussion with Britain’s Society of Professional Economists.

“There was very little in the data that showed any diminution of expected wage increases, expected price increases or for that matter in financial markets … other than in gilts,” she added. ( Reuters)

That was from Catherine Mann who was one of those who voted for a 0.5% interest-rate rise and as you can see she is repeating her past view that she looks at inflation expectations. Of course these have let her down as she missed the actual rise in inflation we have been seeing. But she seems to be adjusting her view for this year.

If 2022’s inflation dynamics mirrored those of last year, inflation would overshoot the BoE’s latest forecasts, which do not see inflation returning to its 2% target until early 2024, she added.

Staying with inflation it is amazing that this needs to be said.

British inflation rose to 5.5% in January, its highest in nearly 30 years, and Mann said all MPC members agreed that was “way, way above our objectives”.

Yes 5.5% is quite a bit above 2%.

Along the way I note that she confessed that my view about Quantitative Easing has been correct.

“QE has created a lot of liquidity, not had a big impact on the real economy.”

“QE has increasingly been absorbed by the financial sector, not transmitted on to the real economy.” ( Forex Live)

This poses a question for a body that has done £895 billion of it supposedly to influence the real economy.

The Ukraine War Influence

In some ways this has had a big influence and in others not much. In terms of the economics it has made everything worse. We will see a weakening of the UK economy as the sanctions we have applied will have effects that rebound on us via the banking and other sectors. Also the fact that Brent Crude Oil futures are back above US $100 again this morning highlights the inflation issue which is added to by the rise in gas prices at the end of last week. That inflation effect will also make the cost of living crisis worse.

If we switch to financial markets there has been only minor changes with one exception. If we look at the FTSE or currency markets not a lot has happened apart from the Rouble move. But there is a potentially large impact on mortgage rates as my leading indicator for this the UK 5-year bond yield has taken quite a dive. On the 14th of February it went above 1.5% but this morning it has dipped below 1% with much of the move coming post invasion.

So we have been looking at mortgage rate rises and now we seem to have completely spun around and may even see a cut or two. The cautionary note is that this is war influenced and may quickly change but looking at it the suggestion is that we will now see fewer interest-rate rises than expected before. As we stand somewhere between one and two 0.25% interest-rate rises have been extinguished.


The potential change in the trajectory of mortgage rates is more relevant as we note this mornings data from the Bank of England.

Net borrowing of mortgage debt by individuals increased to £5.9 billion in January, from £4.0 billion in December. This is above the pre-pandemic average of £4.3 billion in the 12 months up to February 2020, and the highest since September 2021 (£9.4 billion).

So more was borrowed and it looks like that sort of thing is a trend.

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Approvals for house purchases, an indicator of future borrowing, rose to 74,000 in January, above the 12-month average up to February 2020 of 66,700 and the highest since July 2021 (75,900).

This is curious as by then we will have had two Bank Rate increases which up to that point seem to have by-passed the housing market. It seems to be just carrying on although as you can see the remortgaging numbers suggest people are aware of the interest-rate changes.

Approvals for remortgaging (which only capture remortgaging with a different lender) also rose, to 46,200 in January. This remains below to the 12-month average up to February 2020 of 49,500, but is the highest since February 2020 (52,300)

So the housing boom seems to be surviving the switch in Bank of England policy so far at least and mortgage rates did little too.

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages was unchanged at 1.58% in January. The rate on the outstanding stock of mortgages was broadly unchanged from a series low in December, ticking up 1 basis point to 2.01% in January.

Consumer Credit

These numbers will leave the Bank of England rather conflicted.

Individuals borrowed £0.6 billion in consumer credit in January, on net (Chart 2). This is lower than the average of £1.0 billion in the 12 months up to February 2020. This was split between £0.1 billion of additional borrowing on credit cards, and £0.5 billion in borrowing in other forms of consumer credit (such as car dealership finance and personal loans).

On the one hand we have positive credit flows which impact the annual comparisons.

The annual growth rate for all consumer credit increased to 3.2% in January from 1.5% in December. The annual growth rates of credit cards and other forms of consumer credit were 6.2% and 2.0% respectively.

Bit it is supposed to be bearing down on one of its favourites now but can at least point to an impact on one of the relevant interest-rates.

The effective interest rate on interest-charging overdrafts in January rose 30 basis points to 20.83%. Rates on new personal loans to individuals fell by 6 basis points, to 6.21% in January – this was 82 basis points below the January 2020 level. The cost of credit card borrowing was 18.28% in January, 27 basis points below the February 2020 level.

Money Supply

There was another unexpected development here.

Sterling money (known as M4ex) increased by £10.2 billion in January, compared to a £0.5 billion decrease in December.

That was a 0.4% increase and as you can see is very different to December. The annual rate of increase fell to 5.4% but the monthly picture was very different. It was driven by another surprise as we saved more.

Households deposited an additional £7.7 billion with banks and building societies in January. In addition, households deposited £0.1 billion into National Savings and Investment (NS&I) accounts in January,


There is a lot going on as we look at the numbers. If we start with the expectations that the Bank of England is so keen on things are not going well.

LONDON (Reuters) -The British public’s expectations for inflation over the next five to 10 years hit a joint record high in February, according to a survey that is likely to strengthen the Bank of England’s intention to raise interest rates further in the coming months.

U.S. bank Citi and polling firm YouGov said their gauge of expectations for inflation in five to 10 years’ time rose to 4.1% from 3.8% in January, equalling a record high struck in June 2011.

Yet I noted earlier that the UK 5-year yield was dropping well this is in fact wider than just the UK as the tweet below from PriapusIQ shows.

Germany’s 5-year Yield Extends Fall, Down 16 Bps And Set For Biggest Daily Fall Since 2011

Regular readers will be aware that I have been sceptical of central bank commitments to higher interest-rates and those who watched me on Benzinga yesterday evening will have seen me make that point. Maybe markets are catching on although of course we see plenty of market ebbs and flows.


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