Bank says economic slowdown won't last

Bank says economic slowdown won't last

Expectations that interest rates may have peaked were dealt a blow yesterday when the Bank of England said the economy was picking up again and the Nationwide building society reported that house prices bounced back this month from their October fall.

Mervyn King, governor of the Bank, told a parliamentary committee that after hitting a "softer patch" in the autumn, the economy appeared to have recovered momentum in the current quarter.

"So far, the figures for the fourth quarter, particularly the surveys, look if anything a little stronger than the third quarter. In other words, this softer patch does not look to be portending a real slowdown," Mr King said.

He acknowledged that the third-quarter growth rate of 0.4% from the second quarter was substantially slower than the monetary policy committee had expected in the summer. But, he said, business surveys and reports by the Bank's agents from around the country painted "a more positive picture" of the third quarter.

Overall, he said, the outlook remained for steady growth and low inflation over the next two years. He also denied accusations that the MPC had raised rates too far, too fast over the past year and thereby slowed the economy too much.

As he spoke, the Nationwide reported an unexpected rise of 1% in house prices this month after a 0.4% fall in October, which was the first for three years. The annual rate of price increases slid to 15% from 15.3%, however.

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data, along with Mr King's comments, helped push the pound to a nine-month high against a falling dollar of $1.91. The greenback also tumbled to a fresh record low against the euro of $1.3334.

The Nationwide warned, however, that in spite of November's increase, the trend in prices remained muted in recent months.

The lender forecast price growth of just 2% next year, although many other experts are predicting falls.

Howard Archer, an economist with Global Insight, said the data would raise hopes that prices, which have more than doubled in the past five years, would slow steadily in the coming months, rather than crash. "However, a crash obviously cannot be ruled out," he said.

The Nationwide survey also flies in the face of other recent data on the housing market, which show falling prices, tumbling mortgage approvals and vanishing buyers.

Stronger news on the economy also came from the CBI. The monthly survey of retailers, released by the employers' body yesterday, showed the strongest sales since July.

It reported that a balance of 19% of retailers reported sales were stronger than a year ago rather than weaker - up from 11% the month before.

The CBI warned, however, that the retailers in its survey were gloomy about the prospects for the crucial Christmas retailing season, with a majority forecasting that their Christmas sales would be worse than last year.

"With stores open longer, it's not unusual to experience a slow build-up to Christmas. However, this year retailers appear to be bracing themselves for a disappointing Christmas as consumers show a reluctance to spend in the face of rising interest rates and concerns about the economy," said Ian McCafferty, the CBI's chief economist.

"A bumper Christmas would be a big surprise," he added.

Economists said the data suggested it was premature to write off either the housing market or the consumer yet.