Economic Tracker: FPC the clear focus for 2014

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While we will have to wait to get the final statistics for 2013, it is clear to all that 2013 has ended in much a much more robust position than it started.

That is not to say that the signs were not there at the start of the year. 

A year ago it was clear that the following the launch of FLS, mortgage rates had begun to falling and competition had started increasing. 

Lenders were increasing aligning behind the open for business message with the concern that customers and commentators were behind the curve when it came to mortgage availability in particular from the building society sector.

Against this background the Help to Buy announcements in the budget appeared to capture and enhance the public mood. 

Almost instantaneously the story shifted from one on the lack of availability of lending to the new challenge facing the market. Firstly the continued shortage of properties and secondly the continued cost of living squeeze.

While these challenges are still far from being addressed, the presence of FLS (although its use has been limited) has continued to drive down the cost of funding.  Mortgage rates have continued to fall and activity continued to rise. 

By the autumn we had seen positive house price movements across all regions of the UK, and the momentum was such that politicians from all parties were focussed on the second phase of Help to Buy and the potential need to moderate activity.

Despite the rapid change in sentiment it is important to remember that picture across the UK remains varied and that the tough economic conditions (including cost inflation above wage inflation) continue to act as a constraint. 

At the same time the backlogs that have built up within the system on those mean that it is difficult to confidently predict the shape and the speed of the recovery that is underway.

With this in mind we have recently seen action by the Bank of England to further restrict the access to FLS and to focus that support on the small business sector. 

Given the limited actual use of FLS, and the apparent “acceptance” within the funding markets of reduced interest it is hard to predict whether this will have any significant impact on the funding and lending markets. 

What it does do, together with other commentary is to highlight the focus on the housing market within the Financial Policy Committee, a focus reinforced by the Committees associated oversight of the Help to Buy guarantee scheme.

So a year that started being dominated with market intervention from FLS and then Help to Buy, has ended with those same schemes making the headlines. 

While the subjects are the same the context is of course substantially different.  Both will have a continued influence into 2014. 

The key focus for 2014 will clearly be the FPC, their oversight of the market, their commentary on the market and any actions they consider appropriate to instigate.

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