October 29, 2010 / 9:15 AM / 10 years ago

UPDATE 1-UK Sept mortgage approvals lowest since Feb

* Mortgage approvals, lending subdued in Sept

* Consumer credit stronger than expected

* Economists say data unlikely to sway BoE rate decision

(Updates with reaction, comment)

By Matt Falloon and David Milliken

LONDON, Oct 29 (Reuters) - British mortgage approvals came in slightly better than expected in September, but still fell to the lowest since February and overall credit was subdued, Bank of England figures showed on Friday.

The figures did not significantly move financial markets but they suggest that the housing market remains fragile and broader credit conditions tough as the BoE considers whether to start a new bout of quantitative easing next week.

“We do not think there is enough in these figures to persuade more Monetary Policy Committee members to join with Adam Posen in believing that more quantitative easing is required,” said Hetal Mehta, an economist at Daiwa Capital.

The BoE said mortgage approvals numbered 47,474 in September, down from 47,498 in August. Analysts had forecast a reading of 46,000, and the equivalent measure from the British Bankers’ Association hit an 18-month low earlier in the week.

The central bank has slashed interest rates to a record low of 0.5 percent and has created and spent almost 200 billion pounds on British government bonds to support an economic recovery, which has been surprisingly strong this year.

Analysts expect growth to slow sharply as government spending cuts and tax hikes kick in next year. The housing market has slowed sharply and banks are still reluctant to lend to businesses and consumers.

“The feeble level of mortgage lending is clearly a concern,” said Daiwa’s Mehta. “It is likely to reflect both the unwillingness of banks to lend as well as subdued demand.”

The BoE said net mortgage lending was much weaker than expected at 112 million pounds, well below forecasts for a rise by 1.0 billion pounds and August’s level of 1.617 billion pounds.

Net consumer lending rose by 262 million pounds in September after a 21 million pound fall in August. Analysts had forecast that there would be a 0.03 billion pound fall in consumer credit lending.


The BoE changed the way it seasonally adjusts some of its money supply figures, which analysts use to gauge how successful quantitative easing has been.

The central bank’s preferred gauge of money supply, M4 excluding intermediate other financial corporations grew 2.6 percent on an annualised basis in the third quarter.

Using the previous method of seasonal adjustment, this measure of M4 for the three months to September shrank by 0.7 percent on an annualised basis.

“New quarterly data published by the Bank, using a new seasonal adjustment process, suggests that the pick up in M4 growth earlier this year wasn’t as marked as the monthly figures suggest,” said Vicky Redwood of Capital Economics.

“While the MPC looks likely to hold fire at next week’s meeting, more QE is probably not too far off.”

On the year, broad money supply growth was 1.0 percent, the lowest since comparable records began in 1983.

Editing by Patrick Graham

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