Market Analysis Winter 2010/11


remember that many economists would have happily accepted these growth figures, were they offered in January 2010.


Independent economic forecasters have predicted that GDP growth for 2010 will have reached 1.8%


Figure 2 UK key economic indicators


UK key economic indicators


GDP CPI RPI


Claimant unemployment (m) Bank rate at end of period


2007


3.1% 2.1% 4.1% 0.85


2008 0.8%


3.80% 3.1% 1.05


2009


-4.8% 2.9% 2.4% 1.63


2010 e*


1.8% 3.1% 4.4% 1.47


2011 e*


2.0% 2.8% 3.6% 1.56


5.58% 2.39% 0.50% 0.50% 0.90% * average of latest independent forecasts


Cheap mortgages all round – if you can afford them


20.0 15.0 Market Analysis Winter 2010/11 10.0 5


For current owners and those lucky enough to have access to substantial deposits, low mortgage rates have been one of 2010’s dominant features. The big winners have been those on tracker mortgages, which followed the Bank of


Independent economic forecasters have predicted that GDP growth for 2010 will have reached 1.8%. This is up on August’s forecast of 1.5% and July’s of 1.3%. However, forecasts for 2011 remain cautious; the latest revision has moved projected GDP growth in 2011 from 1.9% (made in August) to 2.0%. The Office of Budget Responsibility (OBR), set up by the Government to make independent assessments of the public finances and the economy, has revised up its forecast for 2010, in line with independent forecasters, to 1.8%. However, the OBR has been forced to cut its prediction for 2011 from 2.3% to 2.1%. .


England base rate falls and stayed there. However, the temptation of switching to a fixed rate while product rates are still attractive must be hard to resist for many borrowers.


Inflation has become the problem that just will not go away quietly for the Bank of England and that has led to the likelihood of an interest rate rise in the next six to twelve months. While the Bank of England has not given any indication that it will raise the base rate, the view in its latest Quarterly Inflation Report that inflation could remain stuck above target for longer has pushed up money market borrowing costs. This was followed by inflation figures showing CPI rising to 3.3% in November, from 3.2% in October, adding more pressure on the Bank of England to control inflation.


The base rate is almost certain to increase at some point in 2011 - perhaps by as little as 0.25 percentage points - but more rate rises could add hundreds of pounds a month on to the cost of millions of mortgages. An increase in the base rate to 2.75% would make the average £150,000 mortgage £202 a month more expensive than it is now - taking it to £2,424 a year, according to the CBI.


200


100 120 140 160 180


Swap rates, the money market funding that heavily influences fixed rate mortgages, have risen in recent weeks. Five-year swap rates have shifted up from an average of 2.12% over the past six months to 2.8%. While this could feed through to higher mortgage rates, it is far from certain.


20 40 60 80


0


Central


Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-0 A


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