Business life: My finance news blog

U.K. retail sales rose at the slowest pace since March 2006 and house prices declined for the first quarter in seven years, adding to the case for the Bank of England to cut interest rates again.

Revenue at stores open at least 12 months increased 0.3 percent from a year earlier in December, the British Retail Consortium said in London today. Home values fell 0.8 percent in the fourth quarter, the first drop since 2000, according the HBOS Plc, the country’s biggest mortgage lender.

Signs of slower economic growth prompted the Bank of England to reduce the benchmark interest rate from a six-year high last month after borrowing costs rose because of the collapse of the U.S. subprime-mortgage market. Retailer Next Plc says business is already slowing, and HBOS said today the Bank of England will need to cut rates twice more this year.

“It’s now incumbent on the bank to act quickly to ensure that the pain to consumers is kept to a minimum,” Kevin Hawkins, director general of the BRC, said in a Bloomberg Television interview. Past rate increases “are still working through. The pain will get sharper for everyone.”

Retail sales in the 13 countries sharing the euro fell 0.5 percent in November, the second month of declines, data from the European Union’s statistics agency showed today.

House Prices

HBOS said today house prices rose 1.3 percent in December from November, snapping three months of declines. That was the worst stretch since 1995. The pound rose as high as $1.9828 today and traded at $1.9753 as of 11:55 a.m. in London.

Some analysts said the house-price increase masked a wider property market slowdown. Merrill Lynch & Co. economist Nick Bate said “we would not read much into any month’s data” and Nick Parsons, head of market strategy at NAB Capital in London, said “I simply do not believe the numbers.”

The December gain also contrasts with other reports. Prices fell 0.5 percent last month, Nationwide Building Society said Dec. 28, and mortgage approvals fell to a three-year low in November, according to Bank of England data.

“There isn’t as much activity this time of year, we can see these ups and downs in the monthly changes as the year ends,” said Martin Ellis, chief economist at HBOS, in an interview no fax payday loans payday loan online. “It’s reinforcing our view that we’re heading for a more subdued market.”

Credit Conditions

Tighter credit conditions may discourage homebuyers and household spending. U.K. banks plan to make fewer loans to consumers and companies in the first quarter, according to the central bank’s quarterly survey on credit conditions, published last week.

Higher mortgage rates and gasoline prices will also leave consumers with less money to spend. Banks increased the cost of home loans fixed for two years in November, Bank of England data show. Gasoline prices stayed close to November’s record of $7.82 a gallon last month, according to AA Motoring Trust Trading Ltd.

John Lewis Partnership Plc, owner of the largest U.K. department-store chain, said today it expects the business climate to be “challenging” this year. Next, Britain’s third- largest clothing retailer, said Jan. 3 that U.K. same-store sales won’t rise in 2008 and Jessops Plc, a camera retailer, said revenue fell 21 percent in the seven weeks ended Jan. 6.

Sales of clothing and footwear declined for a third month in December while revenue from food, drink and cosmetics increased, today’s BRC report showed. The lobby group, which represents 80 percent of U.K. retailers, conducted the survey from Nov. 25 to Dec. 29.

Scope to Wait

While 10 of the 50 economists surveyed by Bloomberg News forecast an interest-rate cut as soon as this week, the Bank of England has scope to wait.

Growth in U.K. service industries from banks to airlines unexpectedly accelerated last month. In November, retail sales rose the most in three months as stores lowered prices, the statistics office reported Dec. 21. Inflation was slower than economists predicted that month and unemployment fell to the lowest since 1975.

Bank of England policy makers predict economic expansion of about 2 percent this year following 3 percent growth in 2007. They will make their next interest-rate decision on Jan. 10 after all nine of them voted to reduce borrowing costs last month to 5.5 percent. It was the first unanimous decision for a cut since the aftermath of the Sept. 11 attacks in 2001.
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Research by Lloyds TSB shows that 64 per cent of people expect their mortgage rate to rise when they get a new deal and so they are preparing by cutting back elsewhere.

Mr King is a director of National Homebuyers, the UK’s largest quick property sale firm and the UK leaders in Sale and Rent Back agreements. The company guarantees a fast property purchase for homeowners who need to sell quick.

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A Bush administration plan to help financially stretched US homeowners keep their homes calls for freezing interest rates on subprime mortgages for five years, news reports said Wednesday. President George W Bush was expected to unveil the plan Thursday as the US housing market slump enters a third year, slowing economic growth in the buildup to the November 2008 presidential election.

Rising mortgage defaults have rocked financial markets, caused billion of dollars in losses on securities backed by the home loans and pushed the crisis high onto the politcal agenda.

The plan proposes freezing interest rates on some subprime loans for five years and would widen the options for state and local governments to fund the refinancing of troubled mortgages, the Wall Street Journal reported.

Subprime loans, promoted by financial companies as a way for people with weak credit to buy homes, start out with low interest rates that rise after the first few years - the reason many homeowners are now struggling.

The Bush administration has negotiated with mortgage lenders and investors over ways to reverse the rise in home foreclosures, while avoiding a government bailout of investors who lost money in the crisis.

More than 30 per cent of subprime mortgage holders are behind on their payments, and Credit Suisse analysts say 775,000 homes with more than 143 billion dollars of mortgage debt will go into foreclosure in the next two years, Bloomberg News reported cash advance loans. Nearly twice as many US homes were foreclosed in October compared to a year earlier.

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New research has suggested that people don’t understand the value of a one per cent difference in mortgage rates.

According to Nationwide Building Society, a one per cent difference in rates on a five-year fixed rate mortgage could be worth over ?4,000.

But when presented with the details of two five-year mortgage deals, 28 per cent of respondents said they thought the difference on a ?120,000 mortgage with an interest rate at 5.6 per cent compared to 6.6 per cent would be between ?500 and ?2,000.

A total of 23 per cent had no idea at all while 25 per cent were able to identify the correct difference.

When it comes to mortgages, men have the edge over women - 33 per cent of men answered correctly compared to 18 per cent of women.

Older age groups also did better, 31 per cent of 55 to 64-year-olds guessed correctly while 16 per cent of 18 to 24-year-olds were right.

Matthew Carter, Nationwide Building Society’s divisional director for mortgages, said: “People’s lives are busier than ever in the run up to the festive season and, as a result, they may be less inclined to shop around for the best deal.

“The temptation may be to take a slightly higher rate as an easier, less hassle option freecreditscore. But, as our research shows, most people don’t understand the impact that just a one per cent difference can make, meaning they could be wasting thousands of pounds.”

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