BOE Says It’s Alert to Housing MaRKET sTAB

The Bank of England said Britain’s housing-market recovery is gaining momentum and its Financial Policy Committee is ready to act if any risks to stability emerge.

While the FPC said property activity remains below its historic average, it “judged that it should closely monitor developments in the housing market and banks’ underwriting standards.” In a statement in London today following its meeting on Sept. 18, the panel also said it would be “vigilant to potential emerging vulnerabilities.”

The comments come amid criticism from politicians including Business Secretary Vince Cable that government measures to aid potential homebuyers may help to stoke a property bubble. While the Royal Institution of Chartered Surveyors urged the FPC to set a cap on price increases, BOE Governor Mark Carney has downplayed the concerns.

The FPC said it has a “range of tools” to address any risks. These include guidance on underwriting standards by banks, additional capital requirements on mortgage loans and the tightening of lenders’ affordability tests.

The FPC, set up to monitor financial stability, didn’t make any new recommendations in its statement today.

After asking the Financial Conduct Authority and the Prudential Regulation Authority in June to examine the vulnerability of financial institutions to a jump in interest rates, it said today a preliminary probe suggested that a moderate rise “did not pose an immediate threat.”

Hedge Funds

The panel highlighted that responses to the review didn’t take account of “more significant stresses nor potential amplification channels.” It also said the levels of leverage and potential vulnerability of hedge funds “needed to be looked at more closely.” The FCA and bank staff will gather more information on hedge funds to improve assessment of stability risks, according to today’s report.

Recent data indicate a pickup in the housing market. RICS’s house-price gauge rose to the highest in more than seven years in August, and its measure of the outlook for prices climbed to the highest since 2002. Halifax, the U.K.’s largest mortgage lender, said this month that values will probably continue to increase through the rest of the year, while Hometrack Ltd. said market conditions are the strongest in six years.

Spending on furniture and groceries drove the biggest increase in retail sales in 15 months in September, the Confederation of British Industry said today. An index of annual sales growth rose to 34, the highest since June 2012, from 27 in August.

Recovery Strengthening

The FPC said that global economic prospects have improved since its last meeting in June, though “underlying vulnerabilities in the euro area remained.” It also noted the impact on long-term rates from the prospect of the Federal Reserve tapering its monthly bond purchases this year.

The BOE committee said it is continuing work on a planned stress-test framework for U.K. banks and will publish a discussion paper on this on Oct. 1, when it will release a more detailed record of its Sept. 18 meeting.

Addressing the issue of hackers potentially accessing information at financial institutions, the FPC said it wants the U.K. Treasury and regulators to ensure that banks and infrastructure providers have a “high level of protection against cyber attacks.”

Elsewhere, consumer confidence in Germany will reach the highest since Sept. 2007 in October, according to GfK NOP Ltd. It said today its gauge will rise to 7.1 from 7 this month. In Italy, household sentiment increased to a two-year high of 101.1 in September from 98.4.

China Slows

China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed.

Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September.

In the U.S., data today may show purchases of new homes probably rose in August from July, according to economists surveyed by Bloomberg News. Orders for durable goods probably rose 1 percent excluding the volatile transportation category, another survey showed.

Before it's here, it's on the Bloomberg Terminal.