Bank of England to cut rates to record low as gloom intensifies

Data released by the Bank of England today showed mortgage approvals are bottoming out in the low 30 thousands.

The number of mortgage approvals for house purchase fell by 1,000 to 32,000 in October – matching August’s record low since records began in 1993.

Just 460,000 mortgages have been approved over the year to date –compared with 1,098,000 over the same period in 2007; viscerally reflecting the year that credit crunch took a large bite out of lending activity.

Net lending secured on dwellings rose by just £0.5bn in October, following a £1.5bn rise in September. Growth in net lending secured on dwellings was flat at 0.0%.

Net unsecured lending grew by 0.4% in October from September, possibly reflecting increased credit card usage but also likely to be driven by student loans being taken.

In other news, data released by the Land Registry on Friday showed house prices at the completed transaction stage fell by 1.5% in October, a shallower fall than the 2.6 % slide in prices seen in September.

More recent data on asking prices from Hometrack showed house price falls continuing in November, with a 1.1% fall. The UK housing market is clearly still some way from its bottom – as suggested by the most recent CEBR forecast.

In other news, the latest Purchasing Managers Index survey for manufacturing showed a sharp drop off in activity in November.

The PMI manufacturing index fell from 40.7 to a new record low at 34.4, far lower than expectations of a decrease to 39.7.

Manufacturers are suffering from the double whammy of weak domestic
demand and declining demand from key export markets such as the contracting eurozone.

There is little to cheer in today’s figures. The sobering picture painted by the survey of UK manufacturers suggests the sterling depreciation is doing little to help them in the short-term.

Further to this constraints on bank lending are putting firms under even more pressure to stay afloat. The one solace firms can takeis that in the medium term the improved terms of trade will improve competitiveness.

The collapse in inflationary pressures combined with such compelling evidence of problems in the real economy are likely to push the BoE into a 100 basis point cut on Thursday.

This would take rates to their equal lowest in the bank’s history dating back to 1694. The construction and services PMI figures released on Tuesday and
Wednesday are likely to add to pressure on the monetary policy committee.

Following last week’s record rise, the FTSE look set for another turbulent week.