U.K. Mortgage Approvals Decline to Lowest Level in 18 Months

U.K. mortgage approvals fell more than economists forecast in June to an 18-month low as concerns about the euro area mounted and Britain’s recession deepened.

Lenders granted 44,192 loans to buy homes, compared with a revised 50,544 the previous month, the Bank of England said today in London. That’s the lowest since December 2010. Economists predicted that approvals would drop to 48,000, based on the median forecast of 19 estimates in Bloomberg News survey. A separate report showed retail sales slowed in July.

Recent housing-market data suggest weakening demand is hurting prices, with a Hometrack Ltd. report today showing values fell for the first time in seven months in July. The economy shrank 0.7 percent in the second quarter, and the Bank of England and the Treasury have introduced a program to lower borrowing costs and boost lending to help the recovery.

Today’s figures “suggest that the financial sector is acting as an increasing drag on the economic recovery,” said Samuel Tombs, an economist at capital Economics Ltd. in London. “The low level of consumer confidence and recent tightening of credit conditions suggest that approvals are likely to remain depressed in the second half of this year.”

The Bank of England also said today that M4 money supply fell 1.6 percent in June from the previous month and was down 5.2 percent from a year earlier. The annual drop was the biggest since records began in 1964.

The pound remained lower against the dollar after the data were published. It traded at $1.5695 as of 11:01 a.m. in London, down 0.3 percent from yesterday.

Consumer Weakness

A report from the Confederation of British Industry showed that an index of annual retail-sales growth fell to 11 in July from 42 in June, when it was boosted by an additional public holiday for the queen’s jubilee. The slowdown was sharper than retailers had forecast.

According to the Bank of England, net mortgage lending fell 355 million pounds ($557 million) in June from May, the most in 18 months. The housing market may have been affected by wet weather and the extra holiday. Net consumer credit rose 635 million pounds and net borrowing on credit cards increased 235 million pounds.

Mortgage approvals are at less than half their monthly average in the decade to 2007, before the financial crisis struck. Hometrack said today house prices fell 0.1 percent in July and a measure of demand fell the most in six months.

BOE Meeting

The Bank of England and the Treasury have tried to kick- start lending by introducing a program to get credit to households and companies flowing again. The central bank also increased bond purchases in July to spur economic growth.

Bank of England policy makers meeting this week will probably keep their bond-purchase target at 375 billion pounds and the benchmark interest rate at 0.5 percent, according to separate Bloomberg surveys of economists. Officials will have new forecasts for growth and inflation, which the central bank will publish later this month.

Scotiabank changed its Bank of England forecast today and now sees an expansion of the bond-purchase target by 25 billion pounds this week.

“There has been considerable water under the bridge” since the stimulus expansion in June, including weaker-than- expected second-quarter data, economists including Alan Clarke said in a note. In the euro area, “storm clouds over the periphery have cast a shadow over the core of Europe and further afield, highlighting an increased risk that the infection is spreading.”

A measure of M4 money-supply growth the central bank uses to assess the effectiveness of its asset purchases rose 2.9 percent in the three months through June on an annualized basis. That compares with 3.4 percent growth in the three months through May. The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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