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  • Feb 27th, 2004
  • Comments Off on UK economy strong but confidence wanes
Britain's housing market is still powering ahead while industrial orders are picking up, data showed on Thursday, but there are growing signs that the Bank of England's interest rate hike this month has hit confidence.

The Nation-wide Building Society said house prices surged 3.1 percent this month, more than four times the rate in January and the strongest monthly increase since April 2002.

That took the annual rate to 17.1 percent from January's 14.3 percent - the fastest since July last year. The average house this month cost 138,730 pounds, up nearly 4,000 pounds on the month.

Analysts cautioned that the Nation-wide numbers looked erratic but said there was no doubt the housing market, which has been booming for several years, was not dead yet.

Britain's hard-pressed manufacturing sector also saw its performance improve markedly in February, with factory order books rising to their best level in three years despite the sharp rise in sterling in recent months against both the dollar and euro.

The Confederation of British Industry said its closely-watched factory orders balance rose to -15 this month from -18 last month, the best performance since January 2001. Exports orders were stronger too.

But the survey's output expectations balance fell back in February after a strong rise in January, showing firms were a little less optimistic about the future than they had been.

And the same was true for the consumer, long the key support of the British economy - which grew a respectable 2.3 percent last year - while manufacturing has been in the doldrums.

Research company Martin Hamblin GfK said its key consumer confidence barometer fell to -2 this month from 0 in January - its long-term average. Analysts had predicted a fall to -1.

But despite the decline, the headline number is still considerably higher than the same month a year ago where it stood at -9 before the Iraq war.

The drop in the index figure was driven primarily by a fall in major purchases following the central bank's second rate hike in three months in February and the fact that consumers are more inclined to consider saving money, GfK said.

Overall, analysts said the data were robust but did not necessarily point to a continued boom.

"There are signs that the tightening in monetary conditions - be it higher interest rates or the rise in the pound - are starting to have a bit of an impact on views about the future," said Jonathan Loynes, chief UK economist at Capital Economics.

"The Monetary Policy Committee may feel the need to push on the brakes a bit more but we don't think they will need to go very far," he said.

The central bank has already lifted borrowing costs twice since November, to 4.0 percent this month, partly to cool the housing boom and an explosion in consumer debt levels.

However, some analysts doubted the British consumer was about to throw in towel."Consumer confidence in the UK remains fundamentally robust and we would expect to see this 'negative' sentiment unwind over the next couple of months," said Ross Walker, economist at RBS Financial Markets.

Indeed, a Reuters poll released on Thursday showed City economists almost unanimous in expecting the BoE to leave interest rates on hold at its meeting next week but most predict the next rise will come in May.

Copyright Reuters, 2004


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