UK house prices in July were up 10.2% from a year earlier – the biggest annual change since September 2007.
Halifax said that property prices grew by 3.6% in the three months to the end of July compared with the previous quarter, a truly massive rise.
The monthly increase was 1.4% compared with June, making the average home worth £186,332.
Halifax, part of the Lloyds Banking Group, recently announced that it was moving to reduce its share of mortgages under the government’s Help to Buy scheme.
Borrowers are now able to raise a maximum of £150,000 through Help to Buy, down from £500,000. Under the scheme, buyers are required to provide a deposit of 5% of the home’s value, with another 20% backed by the government if the buyer fails to keep up with repayments.
The Bank of England has also been forced to take measures to try to ensure mortgage lending does not reach the unsustainable levels that produced the 2008 banking disaster, and then a massive slump in production.
Currently there is what is being described as a ‘surging activity’ in the dominant services sector whch accounts for some 75% of the modern UK economy.
The services sector grew last month at the fastest rate since November. The leading ‘think tank,’ NIESR, has meanwhile raised its growth forecast for the economy, this is basically the services sector, reviving the speculation that the Bank of England will raise interest rates before the end of the year, and that some of its policy makers will vote for a rise in interest rates at today’s Bank of England Monetary Policy Committee.
The lop-sided, unbalanced progress of the UK economy is striking. The Purchasing Managers Index (PMI) for the manufacturing sector, last week sank to a one-year low, but the services ‘boom’ lifted overall private-sector activity to a three-month high.
This raises the prospect that the rapid service sector recovery will bring forward a rise in interest rates.
The National Institute of Economic and Social Research (NIESR) meanwhile upped its growth forecast for the UK economy to 3 per cent for this year from 2.9 per cent. NIESR also said it expects UK interest rates, currently fixed at a historic low of 0.5 per cent, to rise as early as February.
Feverish speculation is mounting that the ‘surging growth’ of the service sector could force the Bank’s Monetary Policy Committee into a rate rise even before the end of the year.
‘The MPC’s expectation had been that economic growth would ease in the second half of 2014,’ said Martin Beck at the EY ITEM Club. ‘So signs of renewed strength in the dominant services sector could further increase the chances of one or two Committee members voting for a rate hike in today’s meeting.’
NIESR, economist Simon Kirby has already warned that the BoE needs to give clear guidance on the situation. He said yesterday: ‘One thing that will happen as we converge on that policy turning point is, if communication is not clear, we will see volatility.
‘On past performance there’s potential for some lack of clarity. . . it’s up to the MPC to be as clear as they can be and clearer than they have been over the last six months.’
NIESR also reiterated concern that it could take until 2017 until output per person recovers, as UK productivity is among the worst in the Group of Seven rich nations.
Add to this the political crisis over the Ukraine, the collapse of oil-rich Libya and Iraq, and the US sanctions war against Russia, and you have the makings of another economic disaster.
There is no doubt that a sudden or surprise rise in interest rates will bring the crisis of the British capitalist economy to a head, and see a housing collapse on a bigger scale than 2007-8.
This time round there will be no state rescue for the banks. The only solution will be for the working class to put an end to capitalism with a socialist revolution to expropriate the bosses and bankers.
