Bank of England holds rates as house prices soar

Could the UK be the fastest major economy out of recession? Two key indicators suggest it might...

Last Updated: 31 Aug 2010

The Bank of England has surprised absolutely nobody by leaving interest rates at their record low of 0.5% for a third consecutive month. As the City waits nervously to gauge the success of its quantitative easing scheme (the plan for which remains unchanged, incidentally), this was always the most likely outcome – but particularly since this week has brought two more positive signs. The latest purchasing managers’ index revealed a surprise return to positive territory, while this morning the Halifax reported the biggest monthly rise in house prices for nearly seven years. Is the end of the recession nigh?

Well, the Bank itself certainly doesn’t think so – or at least, it’s not saying as much. In its latest economic forecast, it suggested the outlook remained highly uncertain. It also recently announced plans to extend its QE programme by a further £50bn (good news for foreign gilt investors, bad news for Angela Merkel). Some analysts were advocating another round of cash-printing, on the grounds that more stimulus is needed to get credit flowing – but the Bank has avoided the temptation for now.

One reason for that may be yesterday’s PMI survey results, produced by CIPS/ Markit. For the first time in over a year, purchasing managers in the service sector reported a score above the 50 mark that separates expansion from contraction (51.7, to be precise). According to Markit’s chief economist Chris Williamson, this could mean that UK GDP (which is heavily reliant on services, of course) might even start growing again before the end of the second quarter. That would make our recession exit quicker than the US or the Eurozone – although it’s worth pointing out that most economists think this is highly unlikely, given the likelihood of rising unemployment.

And the good (ish) news keeps on coming: this morning Halifax reported a 2.6% jump in house prices in May, the biggest monthly leap since October 2002; it says that more affordable houses are tempting buyers into the market. However, there are some big caveats here: it’s not unusual to see the odd month of rising prices during a generally downward trend, and we have to remember that this rise comes from a very low base (prices are still noticeably down over the last quarter).

After the week he’s had, beleaguered Prime Minister Gordon Brown will no doubt seize upon these stats as signs that his economic masterplan (whatever it may be) is working like a charm. After all, he’s unlikely to get any other good news this election Thursday. But the rest of us will probably take it all with a pinch of salt – not an indication of imminent recovery, perhaps, but encouraging nonetheless. Which is more than we can say for Gordon’s career prospects.

In today's bulletin:

Bank of England holds rates as house prices soar
Football: the UK's most recession-proof business?
Apprentice star Kemsley out as property empire goes bust
London calling for Warner Music boss
The incredible shrinking Mars bars

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