LONDON (Reuters) - Approvals for home loans in June hit their lowest since records began and retail sales fell at their fastest pace in at least a quarter century as a housing market downturn threatens to derail the whole economy.
The Bank (TBHS - news) of England said on Tuesday that mortgage approvals -- loans agreed but not yet made -- fell last month to 36,000 from 41,000 in May, pointing to further sharp falls in house prices in the months ahead.
Approvals in the three months to June stood at just 134,000, well below the 191,000 low recorded in the fourth quarter of 1992 when the country was in the middle of the last housing slump.
Retailers are suffering. The Confederation of British Industry's monthly retail sales balance fell to -36, its weakest since the survey began in 1983, as sales of white goods, furniture and carpets collapsed.
All-purpose retailer Woolworths (Munich: 886853 - news) also had to issue a profit warning on Tuesday, blaming a marked downturn in trading conditions.
Sterling fell against the dollar after the report but economists say interest rate cuts are unlikely for now as the Bank is having to contend with inflation that is running at almost double its 2 percent target rate. One policymaker even wanted to raise borrowing costs this month.
There was on Tuesday, however, some comfort on the price pressures side from a Citigroup (ASFZ.PK - news) /YouGov (LSE: YOU.L - news) survey showing expectations of the rate of inflation over the next 12 months slipped to 4.2 percent in July from 4.6 percent in June.
RATE FREEZE
Few analysts expect interest rates to go up but they say the prospect of the central bank holding interest rates at 5 percent for the rest of the year is still very high.
That bodes ill for the housing market and the wider economy. After a decade-long boom, house prices are coming down fast as a global credit crunch forces lenders to toughen up terms, making it all but impossible for many would-be buyers to get a mortgage.
The number of properties changing hands has halved from a year ago and homebuilders have announced thousands of job cuts this month.
A government-sponsored report on Tuesday warned mortgage markets could remain jammed for years but fell short of making any recommendations as to what can be done to break the impasse.
The Bank's data on Tuesday showed mortgage lending rising by its weakest amount in nearly 8 years. The overall rise in secured and unsecured lending was the lowest since 1999 and at a third of the level seen just a few years back.
British retailers are not expecting any improvement in their fortunes any time soon. The CBI's expectations balance also hit a series low.
"The risks of a sharper retrenchment in consumer spending, highlighted by today's CBI survey, are real, signalling a real risk that the economy could lapse into a mild recession," said Matthew Sharratt, economist at Bank of America
Source: http://uk.biz.yahoo.com/29072008/325/housing-market-pain-grows-june.html
