This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

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The classification of this document is PUBLIC. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.

pace all year, the Bank of England unveiled a pre-emptive policy response in its Financial Stability Report." /> This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Group’s Group Economics Department, as of this date and are subject to change without notice.

The classification of this document is PUBLIC. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.

pace all year, the Bank of England unveiled a pre-emptive policy response in its Financial Stability Report." /> This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Group’s Group Economics Department, as of this date and are subject to change without notice.

The classification of this document is PUBLIC. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.

pace all year, the Bank of England unveiled a pre-emptive policy response in its Financial Stability Report."/> Safe as houses - Economics weekly

Safe as houses - Economics weekly


Safe as houses - Economics weekly

All eyes this past week were on the UK’s housing market. As national house prices rose at their fas<h3>Disclaimer</h3> <p><span class="rte-disclaimer">This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. </span></p> <p><span class="rte-disclaimer">Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Group’s Group Economics Department, as of this date and are subject to change without notice. </span></p> <p><span class="rte-disclaimer">The classification of this document is PUBLIC. The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.</span></p> pace all year, the Bank of England unveiled a pre-emptive policy response in its Financial Stability Report.

Economic Analysis

02 December 2013

And it is not just the UK

House prices in the US are starting to fuel talk of a bubble. Given the focus on housing, one could easily miss the other news of the week, in which the UK consumer was shown to be a key driver of growth in Q3, Eurozone unemployment fell marginally and the Netherlands saw its credit rating downgraded from triple-A.

UK housing on a roll

According to Nationwide the average price of a house in November was £175k, an increase of £11k on a year earlier. House prices grew at their most rapid rate all year. This has coincided with October seeing more mortgage approvals for buying a house than any time since February 2008.

Gross mortgage lending was up 34%y/y in October, according to the Bank of England. But with many existing borrowers continuing to pay down debt at a healthy lick, overall outstanding mortgage debt only grew by 0.8%y/y.

A pre-emptive move by the BoE

The UK Treasury and the Bank of England decided to pull the plug on the incentive banks receive under the Funding for Lending Scheme (FLS) to support mortgage lending and personal loans.

The decision came as house price growth gathered momentum in recent months, convincing the Chancellor of the Exchequer and the Governor of the BoE that household lending no longer needed this line of support. This means that in 2014 the FLS will be fully focused on lending to businesses, particularly SMEs.

Consumers, services and UK growth

The UK economy grew by 0.8%q/q in Q3, faster than Japan and even the US. If it grows at the same rate in Q4, then by the year's end it will be about 1.5% larger than in 2012. Not bad, recalling the 0.2% growth the UK managed in 2012. However, growth could be better balanced.

The UK remains dependant on household consumption and services. Net trade knocked almost a whole percentage point off growth in Q3. But the UK is a service-led economy and has been increasingly so for decades. Boosting manufacturing, while it may be desirable, will take time.

Bubble talk in the US

US house prices continued to grow strongly, rising 11.2%y/y in the third quarter according to the Case-Shiller National Index. The separate 10 and 20-city indices each recorded 13.3%y/y rises. Case-Shiller’s authors dismiss the idea that a bubble is inflating, pointing to indicators that suggest the pace of growth is weakening.

For example, price inflation was slower in 19 out of 20 cities in September than in August. However, a useful rule of thumb in economics is that nothing grows at more than 3%y/y unless there is a very good, or very bad reason.

One step forward, one step back

The Eurozone unemployment rate fell from a record high of 12.2% in October to 12.1% in September. This was driven by declines in half of the member states, including Ireland and France. In the other half Cyprus, Greece and the Netherlands showed the biggest increases, while Spain reached 26.7%. Despite the overall improvement, youth unemployment rose to a new euro era high of 24.4%, with over 3.4 million under-25 out of work. The rate went up to 57.4% in Spain and 41.2% in Italy, another step in the wrong direction.

A sigh of relief in Europe

Inflation in the Eurozone accelerated to 0.9%y/y in November from 0.7%y/y in October. The inflation rate is still less than half the European Central Bank’s (ECB) 2% inflation target because domestic demand remains subdued. But the increase in prices was surely welcomed by the ECB, which cut rates to a historic low of 0.25% in November.

The central bank shrugged off concerns about deflation, emphasising that it has a big arsenal to deploy in case the outlook deteriorates. This could include a further rate cut, negative deposit rates for banks, and even some form of asset purchases. We do not expect any of these options to be implemented when the Governing Council meets on Thursday.

And then there were three

The Netherlands has become the latest member of the Eurozone to be stripped of its triple-A rating. Standard & Poor’s (S&P), one of the three main rating agencies, downgraded the nation’s credit rating to AA+ on the back of a worsening economic outlook. The Dutch economy has contracted year-on-year in every quarter since 2011 and S&P expects it to shrink by 1.2% this year.

As with France, which was downgraded by one notch to AA- last week, market reaction has been muted with bond yields stable slightly above the 2% mark. But the Eurozone is now left with only three triple-A economies: Germany, Finland and Luxemburg.

 

Disclaimer

This material is published by The Royal Bank of Scotland plc (“RBS”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.

Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the RBS Group’s Group Economics Department, as of this date and are subject to change without notice.

The classification of this document is PUBLIC. © Copyright 2013 The Royal Bank of Scotland plc. All rights reserved.

 

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