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British Pound Gains as UK Mortgage Approvals Rise More Than Expected

British Pound Gains as UK Mortgage Approvals Rise More Than Expected

2016-11-24 15:10:00
Oliver Morrison, Analyst
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Talking Points

- UK mortgage approvals rise to a five-month high in October.

- The data illustrate further signs that UK consumers are defying Brexit fears.

- Consumer confidence may still be hit when UK eventually leaves EU for good.

The British Pound is clawing back some gains on the Dollar and rising on the Euro after data earlier Thursday morning revealed that UK mortgage approvals climbed to a five-month high in October.

Chart 1: GBP/USD 5-minute Chart (November 24, 2016 Intraday)

British Pound Gains as UK Mortgage Approvals Rise More Than Expected

Mortgage approvals for house purchases by the main High Street banks picked up for a second successive month in October, according to the British Bankers Association, a trade body for the UK banking and financial services sector. Mortgage approvals rose to 40,900 in October from 38,700 in September, beating consensus estimates of a rise to 39,000.

The data are not important enough to influence Bank of England thinking on monetary policy. But they do illustrate further signs that consumers are playing a leading role in keeping the economy growing following June’s Brexit vote.

Chart 2: EUR/GBP 5-minute Chart (November 24, 2016 Intraday)

British Pound Gains as UK Mortgage Approvals Rise More Than Expected

Will this ‘British pluck’ among UK shoppers continue? Many are warning it will run out of steam. Mortgage approvals in October may have bounced back from August’s 19-month low, but they are still 10.5% lower year-over-year.

Economists also continue to suspect that business and consumer uncertainty will heighten next year in the run up to the UK’s official departure from the EU, which will hamper economic activity and crimp confidence and spending on the British high street. Rising inflation due to the weakened Pound will put pressure on peoples’ earnings and on companies’ willingness to hire staff.

This impending stagnation of households’ real incomes, driven by soft employment growth and high inflation, suggests that mortgage approvals will remain depressed next year. However, there is still a massive shortage of houses for sale in the UK, which is sustaining house prices.

Also remember that these figures are not the official measure. More comprehensive Bank of England data, which include specialist lenders, are published Tuesday.

Read more: British Pound Rallies as Autumn Statement Reveals New Fiscal Stimulus

--- Written by Oliver Morrison, Analyst

To contact Oliver, email oliver.morrison@ig.com

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