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UK mortgage approvals sank in September to the lowest since January 2023 while money supply contracted further, according to official data that reflects the impact of high interest rates on lending days before the Bank of England decides whether to raise them.
Net mortgage approvals for house purchases fell to 43,300 last month from 45,400 in August, according to figures published by the central bank on Monday. The number was below economists’ expectations of 45,000 and 35 per cent lower than in September 2019, before the pandemic.
Net approvals for remortgaging dropped to 20,600, the lowest since January 1999. The contractions come as the BoE said the average rate on new mortgages rose above 5 per cent in September for the first time since 2008.
Policymakers have sharply lifted interest rates from an all-time low of 0.1 per cent in November 2021 to 5.25 per cent now in a push to tame inflation. Steep borrowing costs have increasingly hit economic activity, leaving output largely stagnant over the past year, and Monday’s data suggests the weakness will continue.
Ashley Webb, economist at consultancy Capital Economics, said: “The further decline in bank lending in September will continue to weigh on activity, particularly in the housing market.
“This is consistent with our view that a mild recession may already be under way and it supports our view that the Bank of England will leave interest rates on hold at 5.25 per cent on Thursday.”
Markets widely expect the central bank’s Monetary Policy Committee to leave interest rates unchanged at 5.25 per cent — the highest level since the 2008-09 financial crisis — as data increasingly points to signs of weakness in economic activity and softening price pressures.
The latest figures from the BoE support that view, showing that annual growth in the amount of money in the UK economy — a measure known as M4ex — contracted by 4.2 per cent in September. That is the largest fall since records began in 2010 and the second contraction on record after money supply turned negative in August.
The annual growth in money supply for households slowed to 0.8 per cent in September, the lowest since records began in 1998.
The central bank’s data also showed softening consumer borrowing, which fell to £1.4bn in September from £1.7bn in August, suggesting some households are cutting spending.
Households also moved money in search of higher returns, withdrawing a net £0.7bn from banks and building societies in September. The movement continued a trend from August, and was driven by large withdrawals from instant access accounts, which pay lower interest, in favour of accounts offering better rates.
Households’ net deposit flows into National Savings & Investments also rose sharply to £7.7bn in September, the highest since August 2020. In August, the state provider raised the interest rate on its one-year fixed bonds from 5 per cent to 6.2 per cent.
Thomas Pugh, economist at consulting firm RSM UK, said he expected the economy “to stagnate with little to no growth over the next year”.
“But the lagged effect of the huge rise in interest rates that has already happened, combined with the risk of further rate rises, could easily tip the economy into recession later this year or in early 2024,” he added.
