Economic Highlights

Mortgage lending remained firm in January, increasing to £5.9bn from £4.0bn in December. This is considerably higher than pre-pandemic levels, in which mortgage lending in the 12 months to February 2020 averaged around £4.3bn. It also marked the highest level of lending since September 2021, when purchases were frontloaded to benefit from the last month of the Stamp Duty holiday. Furthermore, strong mortgage approval data suggests that the strength of lending is set to continue, as approvals hit 74k, the highest since July 2021. With mortgage rates set to rise, in line with expectations for a further tightening in monetary policy, it is possible that this strong set of data reflects purchasers’ desire to secure mortgages before such rate increases. Meanwhile, on the consumer lending side, individuals borrowed £0.6bn in January (split between £0.1bn on credit cards and £0.5bn on other forms of credit, such as car finance), slightly less than the £0.8bn in December 2021. Households deposited an additional £7.7bn in January with banks and building societies, around three times that of December. This large deposit has resulted in our measure of aggregate households’ excess savings from the pandemic rising in January to £161bn, following a fall in December. However, these savings are disproportionately held by higher-income households, and thus will not protect all households from the current inflationary pressures.

The key US economic news last week came in the form of the Non-Farm Payrolls and associated labour market data. Payrolls were 678k higher in February, well ahead of the 400k consensus forecast and even better when one takes into account upward revisions to past data. The household labour survey showed unemployment falling from 4% to 3.8%. Average hours went up from 34.6 to 34.7 as Omicron-related absenteeism was reduced. Hourly wage growth was the biggest surprise, falling from 5.7% to 5.1%, which might give the Fed some cover not to be too aggressive with its initial policy tightening measures.

Eurozone inflation beat expectations for the eighth consecutive month, rising by 5.8% year-on-year at the headline level, and 2.7% at the core level. However, with Producer Prices up an astounding 30.6%, it appears inevitable that inflation has further to rise – and these readings came before the Russian invasion of Ukraine. The only alternative would be for margins and profits to take the hit instead. In reality, we are likely to see a combination higher prices and reduced earnings. The European Central Bank will have much to ponder at Thursday’s meeting, having to balance the twin threats of higher inflation and weaker growth.

China has reported its monthly trade figures for February. These showed Exports rising 16.3% year-on-year, ahead of the 14% consensus forecast, with Imports  up 15.5%, lower than the expected 17%. The trade balance showed a healthy surplus of $116bn. There are no major category comments, but one detail worth picking out is that although Oil imports rose 4.9% by volume, they rose 124% by value.