Mortgage approvals at 13-month low in October

UK Finance’s latest data will reinforce beliefs that there is unlikely to be a sustained, significant upturn in the housing market activity any time soon.

The figures showed £23.1 billion was borrowed last month for home purchase, with two-thirds carried out by High Street Banks, which translated to £15.3 billion.

UK Finance’s senior economist Mohammad Jamei, said: “The anticipated bank rate rise saw a flurry of remortgage activity as many homeowners took advantage of the competitive rates on offer. Borrowing was also boosted by stronger first-time buyer activity as this segment benefitted from good credit availability, lower rates and government housing schemes.”

UK Finance also said that at t 7.1 per cent, the total amount of credit outstanding grew at a slower pace in October compared with the previous month, while the growth in credit card borrowing remains strong, partly driven by the inflation rate.

Growth in credit outstanding by High Street Banks was 5.1 per cent, which also represents a slower pace than seen in September.

The latest figures from the High Street Banks suggest that businesses continue to exercise a cautious approach to borrowing with survey indicators showing demand for credit from smaller and medium sized businesses falling in the third quarter.

Meanwhile, the UK economy picked up a little speed in the third quarter but it was still far from racing ahead. GDP growth edged up to 0.4 per cent quarter-on-quarter (q/q) from 0.3 per cent in both the second and first quarters.

Growth in the third quarter benefited from a marked pick-up in consumer spending which may well have been helped by the weak pound. The Office of National Statistics (ONS) indicated that spending on cars also increased after being held back by tax changes in the second quarter.

Business investment grew but was modest. Net trade was disappointingly a major drag on growth as exports fell. Imports rose markedly but this was lifted by non-monetary gold imports.

On the output side of the economy, third-quarter GDP growth was lifted by improved industrial production. This outweighed contracting construction activity while services expansion matched its second quarter performance.

Despite the modest pick-up in growth in the third quarter and stronger consumer spending, the outlook for the UK economy remains challenging. Consumer purchasing power is still being squeezed while business concerns and uncertainties over Brexit and the economy are hampering investment.

Experts at global accountants EY said they suspect that the economy will continue to grow around 0.3-0.4 per cent through the fourth quarter of 2017 and much of 2018. Consequently, they forecast GDP growth at 1.5 per cent in 2017 and 1.4 per cent in 2018.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The squeeze on consumers is likely to remain appreciable through the final quarter of 2017 with consumer price inflation expected to hover around 3 per cent and earnings growth remaining weak.

“Growth in 2018 should be helped by the squeeze on consumers easing as the year progresses. Inflation is likely to head back to 2 per cent by the end of the year from 3 per cent at the start and earnings growth should gradually strengthen.

“However, the upside for consumer spending is expected to be limited by markedly slower employment growth. We do not expect the Bank of England to raise interest rates again before the fourth quarter of 2018. Additionally, given that the recent interest rate hike was the first since 2007, the MPC may well feel a need to sit tight for an extended period to see how consumers and businesses respond.

“Economic activity is also likely to be hampered during much of the year by Brexit uncertainties which may limit investment in particular. Domestic political uncertainties may also weigh down on business sentiment and behaviour.