The British economy has bounced back firmly from the dampening effects of the soccer World Cup and Queen Elizabeth's golden jubilee celebrations in June, a raft of data showed yesterday. Car production, mortgage lending and government spending all surged last month after dipping sharply in June, suggesting the world's fourth largest economy is in healthy shape with little need for another interest rate cut.
Indeed most City pundits, having worried last month that borrowing costs may need to be cut again from their 38-year low of 4 per cent, now think interest rates will be left on hold until well into next year.
"Today's wave of indicators suggests that the UK economy remains robust," said Mr John Butler, economist at HSBC. "More importantly it suggests that fears that the weakness in most indicators in June was an indication of a renewed slowdown in the economy were overplayed."
Government bond prices slid from early highs when the data were released on the perception that further rate cuts were now less likely.
The Council for Mortgage Lenders said gross lending surged to a record £21.8 billion sterling (€34 billion) in July, up 41 per cent on the year and compared with £17.1 billion in June. Loans numbered 147,000, the highest since records began in 1998. And the British Bankers' Association said mortgage lending rose by £4.7 billion after an underlying rise of £4.1 billion in June and the recent average of £4.3 billion.
"The buoyant conditions in housing and lending markets are likely to persist for the rest of 2002, as households continue to enjoy low interest rates and high levels of employment," CML head of research and analysis Mr Bob Panell said.
The Office for National Statistics reported that car production surged 20 per cent to almost 134,000 in July after a 23 per cent fall in June as car makers made up for June's lost working days ahead of the August registration change which boosts demand. "This suggests that the weakness seen in June was almost entirely due to working-day distortions around the Golden Jubilee celebrations and the World Cup," said Mr Alan Castle, economist at Lehman Brothers.
Economists said the rebound in car production would likely lead to a rebound in overall manufacturing output, which suffered its steepest drop in 23 years in June.
The Office of National Statistics also released figures for the public finances showing spending by government departments 13.6 per cent higher in July than a year ago, after a 5.7 per cent annual fall in June because of a drop in the number of working days in that month.
The figures also showed income tax receipts slightly higher in July than a year ago, a reflection of the strength of the labour market where employment is now at a record level.
Value added tax receipts were nearly 6 per cent up on the month, suggesting retail sales recovered from the June fall.
"VAT receipts were particularly buoyant, again suggest that talk of a consumer collapse is misplaced," said Mr Castle.
Official retail sales data for July are out on Thursday and are a key indicator since consumer spending accounts for nearly two-thirds of the economy. They are forecast to show a sharp rebound from June.
Minutes of the Bank of England Monetary Policy Committee's latest rate meeting, released last week, showed the committee had toyed with the idea of cutting rates again in response to recent sharp falls in the stock market but had decided there were "compelling" reasons to leave rates steady.
With the stock market now 20 per cent better than its July 24th low, the prospects of another rate cut are receding. But with inflation still very much under control, the chances of a rate hike any time soon are also remote. - (Reuters)
