Economic Highlights

The rebound in the number of new mortgage approvals, from the unusually low level of 43,675 in September to 47,383, suggests that housing demand has improved a touch and that mortgage lending may start to edge up in the coming months. Even so, the £0.1bn decline in the stock of mortgage lending in October followed a £1.0bn drop in September as repayments were once again larger than new mortgages issued. In the past 12 months, the stock of mortgages has risen by just 0.5%. A £1.3bn increase in consumer credit suggests that higher interest rates are yet significantly to reduce unsecured borrowing. In the past year, the stock of consumer credit has risen by a solid 8.1%, up from an 8% increase in September. Some of this might be because the cost-of-living crisis has forced some households to borrow to fund necessary spending. We know from the decline in real retail sales in October, though, that the household sector recently reined in its spending. That may partly explain the £4.6bn increase in cash deposits in households’ bank accounts in October, which was the largest since November last year. Looking ahead, as the mortgage rate for existing borrowers has risen by only a third of the rate for new borrowers, a lot of the effects of higher interest rates have yet to be felt. As such, consumer credit may soon start to grow at a slower rate.

Third quarter real GDP growth was revised up by 0.3% to +5.2% on an annualised basis. The composition was weaker than the headline, as the revision reflected a larger rise in the structures category that is benefitting from CHIPS/IRA-related spending. Additionally, the +0.1% revision to the inventory contribution could represent a technical headwind of the same magnitude for Q4 GDP. Gross domestic income rose 1.5% annualised, well below the pace of GDP. The Core PCE Deflator, still the Fed’s favoured measure of inflation, we believe, came in at 3.5% for October, down from 3.7% previously. That maintains the positive trend of lower inflation readings, something that has allowed investors to take a rosier view of the interest rate outlook.

In Europe, the picture was similar. Germany reported CPI at 2.3% compared with a consensus forecast of 2.5%, and Spain came in at 3.2% (3.7%). As for the eurozone in aggregate, Core CPI came in at 3.6%, well below expectations of 3.9% and a prior reading of 4.2%. A rate cut from the European Central Bank (ECB) is fully priced in for April 2024, although its council members have been pushing back on that expectation.

There was a small shaft of light in the latest Caixin PMI readings, as the Manufacturing reading jumped from 49.5 to 50.7 (forecast 49.6), indicating output expansion. Or is this another false dawn? The Financial Times reported a growing number Chinese borrowers being added to an official credit blacklist for missing payments on existing loans. It still looks like a gradual turnaround at best in the absence of a big stimulus programme, which seems improbable.