---- by Pan Pylas ----
LONDON (AFX) - The Bank of England's Monetary Policy Committee is one step nearer to raising interest rates after a clutch of data today showed absolutely no sign of UK consumption slowing down of its accord, economists said. First there was a housing survey from the Nationwide, the UK's largest building society, which showed that annual house price inflation is rising by 17.9 pct, its fastest rate since 1989, just before the last major housing market crash.
Further data from the BoE and market research analysts GfK indicated that consumers are getting more and more confident and unwilling to rein in their spending. The BoE found that net mortgage lending rose by 5.7 bln stg, or 0.9 pct in April, a new cash-terms record. Meanwhile, consumer credit rose by 2 bln stg, or 1.4 pct in April, ahead of analysts' expectations of 1.6 bln.
GfK said UK consumers remain in positive mood, with confidence improving for the second month running. According to its survey, the headline April consumer confidence barometer rose two points in May to +6.
"I don't think this is sufficient to push the MPC over the edge (at next week's meeting) but the case is strengthening," said Merrill Lynch economist Mike Taylor. "This (consumption) is one piece of the jigsaw that's firmly in place." The MPC, said Taylor, will need to see more evidence of a manufacturing recovery and the pace of recovery in the US, adding that the current spending boom was inevitable with interest rates at 4 pct, a 40-year low.
"But the longer this goes on, the more rates will have to go up," he added. Royal Bank of Scotland economist Ross Walker noted that house price inflation remains well below the 1980s peak of over 30 pct, adding that the hawks on the MPC will be a lot less sanguine about the Nationwide housing data.
"The last set of MPC minutes for May indicated that the more hawkish members were beginning to fret about house price inflation," he said. "June's MPC meeting could well herald the first vote(s) for a rise in rates since September 2000 - though we do not expect the first rate hike until August."
However, Robert Barrie, economist at Credit Suisse First Boston, still reckons that consumption can slow down largely on its own, without much help from monetary policy. He expects rates to rise in the next three months. The main variable in the demand surge as well as the future retreat concerns what is happening with incomes, he said. Much of the recent rise can be attributed to sharp incomes growth, while the slowdown will come about from slower income growth, accentuated next year, in particular, by higher taxes.
"It's all out there in the future," he said. And Mark Miller, economist at Morgan Stanley Dean Witter, remains confident consumption will slow down as unemployment increases. He thinks rates will rise in the fourth quarter but highlighted the risks of an earlier increase.
Meanwhile George Buckley, economist at Deutsche Bank, said the MPC will be increasingly concerned about the upside risks to inflation from the depreciation in sterling. "Recall that the upside risks to inflation in both the February and May Inflation Reports were largely due to the possibility of a depreciation in the currency by more than the central projection," he said. "This should not change the view about the outcome of the June meeting (of no change)."