May 2, 2012 / 8:52 AM / 6 years ago

Lending and construction offer hope for UK economy

LONDON (Reuters) - Approvals for home loans in Britain rose unexpectedly in March and construction activity grew at a robust pace in April, suggesting some resilience in an economy that entered a recession early this year.

The more upbeat news may help ease fears of a knock-on effect on consumer and business morale from official evidence of an economic downturn, even though the housing market remains sluggish compared to its strength before the financial crisis.

The Bank of England said on Wednesday that mortgage approvals climbed to 49,860 from February’s 49,029, confounding forecasts for a fall to 48,000, showing the housing market continued to recover despite the end of a tax exemption for first-time buyers in late March.

And although the Markit/CIPS Construction Purchasing Managers’ Index eased to 55.8 in April, it remained well above the 50 level which separates growth from contraction and beat forecasts for a bigger fall.

That contrasted sharply with a steep slump in construction shown in the official statistics for the first quarter and kept hopes alive that the statistics office may yet revise data showing a surprise overall contraction in the economy.

“These aren’t the biggest releases of the week, but they do hint at least at a degree of resilience in UK activity,” said Investec economist Philip Shaw.

The data contributed to the pound’s rise to a 22-month high versus the euro, while British government bonds briefly pared some earlier gains as confidence grew that the central bank may shy away from giving the economy another cash boost next week.

Most economists do not expect the Bank of England to extend its quantitative easing asset purchases at its meeting next week, as the central bank has been focusing on more upbeat surveys recently, even if the poor GDP numbers and unexpectedly weak manufacturing in April have brought back talk of more QE.

Latest news from British firms also pointed to an economy performing unevenly, rather than sinking deeper into gloom.

Sales at Next (NXT.L), the country’s second-biggest clothing retailer, edged higher, and its chief executive said he did not expect the news of the technical recession to prompt a fresh slump in consumer confidence.

    “The year is going to be subdued and very much like last year,” Simon Wolfson told Reuters.


    Britain’s biggest household goods retailer Home Retail HOME.L said its profits fell, however, adding that it remained cautious about the consumer outlook. Its catalogue-based Argos stores have been particularly hard hit, not least because their mainly low-income customers have suffered most in the downturn.

    And mortgage approvals are still only slightly above half their pre-crisis monthly level of 90,000, indicating that the economy remains weak even though it may not be deteriorating.

    The central bank also said that consumers borrowed more in March, with net consumer credit rising by 0.4 billion pounds, the biggest rise since September.

    Credit card borrowing rose by 0.2 billion pounds in March - its biggest increase since last July - after a net repayment of 0.1 billion pounds in February.

    Additional reporting by Michelle Martin; editing by Sven Egenter and Patrick Graham

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