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Bank of England gives warning of squeeze on consumer spending


The Bank of England governor Mark Carney has warned of a consumer spending squeeze this year as inflation rises and real wages fall.

The Bank forecasts that average weekly earnings will grow at a rate of 2% this year, but rise to 3.75% by 2019. Activity in the housing market is said to correlate with consumption growth which is likely due to the decisions about whether to buy a house and how much to consume tend to be driven by common factors such as income growth and confidence. Rises in house prices can also affect spending directly by raising the value of homeowners’ equity, which they can then use as collateral against which to borrow, although this effect, in reality, is estimated to be small.

In addition, the outlook for the housing market was said to be slightly weaker than expected in February. Annualised house price inflation fell to 0.7% in the three months to April, according to the average of the Halifax/Markit and Nationwide indices.

House price inflation is expected to slow further in the near term, before recovering further ahead. Meanwhile, mortgage approvals were broadly unchanged in Q1 – a little lower than expected three months ago. And the number of mortgage completions remained around 2% lower than a year ago in February, which was primarily due to continued weakness in buytolet completions. However, in contrast, firsttime buyer completions increased and approvals are projected to rise slightly in the near term.

Looking ahead, the outlook for the housing market is said to depend on the cost and availability of mortgages. In recent years mortgage interest rates have fallen markedly to historical lows and this should continue to help support housing activity. However, secured lending growth slowed slightly in March.

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