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UK’s Mortgage Approvals Rises To The Highest In 18 Months, While CPI Beat Estimates In The Euro Zone

Today U.K. released important data reflecting the economic situation in the economy after the improvement signaled recently. The British economy managed to moderate the pace of contraction in the third quarter to 0.3% from 0.6% in the second quarter thanks to the stimulus measures adopted by the BoE to stall the deterioration.

Mortgage approvals for October, after touching its highest in 18 months in September, it continued its upside rise in October to from 56.2 thousand. It seems that the housing market which was responsible for the crisis is emerging from a rout.

Housing market is recovering as consumer credit improves and unemployment steadies in September amid a global turnaround. Quantitative easing by the BoE boosted spending and lending and revived the economy.

However, net consumer credit for October slipped to -0.6 billion from -0.3 billion in September, while net lending securities on dwellings stagnated 0.9 billion. Now, consumer spending, which constitutes two thirds of the economy, is still suffering, despite that unemployment stagnated at 7.8% in the three months ending September, marking the slowest pace in 18 months.

Also, M4 money supply final reading for the month of October slumped for the second straight month to 1.6% from 1.8% on the month and plummeted to 10.8% from 11.0% on the year. Prices are still facing downside pressure regardless of the improving data. Annual inflation showed an incline in to 1.5% in October from 1.1% a month earlier, yet the rate is raising concerns.

It is presumed by the central bank that inflation might rise above 2% in near term, as a result of higher petroleum prices and the reversal of the value-added tax (VAT) cut. It is projected that inflation will reach nearly 1.6% before surpassing the target by mid-2012.

The BoE cut the interest rate to 0.5% and raised the asset purchase program in November to 200 billion pounds. World central banks may start withdrawing their stimulus by mid-2010 and shift towards more tightening monetary policies. Nevertheless, the decline in M4 is arousing skeptics concerning the soundness of the APF program.

Moving to the Euro Zone, CPI flash estimate surprisingly inclined to 0.6% from -0.1% in October, exceeding analyst’s expectations of 0.4% rise. The rate surged for the first time since April, moving to the positive areas.

The ECB is undertaking confident steps towards recovery as the economy is recovering gradually as seen by the data released lately. The economy grew in the third quarter by 0.4% from 0.2% contraction in the second quarter. The expansion in sectors is more likely to lift prices to the upside.

In addition, the ECB slashed the borrowing cost to 1% and announced 60 billion euros stimulus plan to bolster the economy. The bank expects inflation to reach 1.2% in 2010, higher than prior estimates of 1.1%. For 2011, expectations are unchanged at 1.6%, while on the long term the bank predicts the rate to reach 1.92% from 1.98%.

ECB members will meet this week to set the interest rate for December where it is expected to remain unchanged at 1%. Some economists expect the economy to fully recovery in 2010; however, there is no rush to unwind stimulus measures as the economy is gathering strength. The OECD mentioned that the ECB may keep the interest rate unchanged till the end of next year and it will reach 2% by the end of 2011.

Ecpulse

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