Economic Highlights

Mortgage growth remains strong, but consumers are still paying down debts overall. That’s the odd world of lockdowns. The current level of mortgage approvals remains the strongest since 2007, most likely bolstered by home buyers striving to beat the current expiry date of the stamp duty holiday of end-March (although there are rumours of an extension to be announced in the Budget on Wednesday). Consumer Credit declined by a net £2.4bn in January, leaving outstanding credit down 8.9% y/y, the steepest fall since the data begin in 1994. Meanwhile, household deposits continued to expand rapidly, rising by a further £18.5bn, reinforcing the impression of a significant build-up in household savings that could be unleashed as social restrictions are eased, accelerating the future pace of recovery.

The biggest news over the weekend was the passing of the Democrats’ $1.9 trillion stimulus through the House of Representatives, where they have a decent majority. Passage through the Senate will be a lot tougher, although it is not expected to be completely blocked, just cut back. Meanwhile current data continues to show the economy in recovery mode. New Home Sales in January were 923k against an expected 856k. Momentum is strong for now, but we’ll have to keep an eye on the effect of mortgage rates. These have jumped higher with bond yields, from a low of 2.82% for 30 years just three weeks ago to 3.25%.

The latest PMI data show an economy that, while still growing, is no longer accelerating. Manufacturing PMI (50.6 vs 51.3 and f/c 51) is sluggish, as is Services (51.4; 52.0; 52.4). This is not entirely surprising, given a light tap on the brakes by policymakers through the final quarter of 2020, but might just take some of the heat out of local equity markets and global commodities in the short term.