The mortgage market has traded in a very narrow range for the last couple of years. During the summer months this year there were some signs of an underlying improvement in volumes but the onset of the Euro crisis and extremely disappointing UK economic growth figures have dampened any prospect of recovery……
Economic output forecasts for 2012 and 2013 have been scaled back as hopes of an investment and export led recovery have largely evaporated. The consumer in the UK has had to cope with an unprecedented squeeze on real incomes and this is now being compounded with a real risk of unemployment. …..
Real household income remains under downward pressure due to a combination of low wage settlements and sticky consumer price inflation. Higher levels of unemployment and expensive credit for low income groups will also constrain consumer growth.
The weakness in UK domestic demand and moderating inflation during the course of 2012 will lead to little pressure for higher interest rates. We do not expect to see any change in interest rates until 2014 and even then any rise will be very modest. UK 5 year and 10 year bonds are at all time lows and given the outlook for growth and inflation are unlikely to move much from current levels.
Gary Styles Hometrack