The lack of movement comes as no surprise, even though Bank Governor Mervyn King was forced to write to Chancellor Alistair Darling again as January’s inflation figure edged more than 1 per cent above the 2 per cent target. In his letter King stressed that while the quantitative easing programme has been put on hold it will be reactivated if necessary.
Economic activity is improving but still weak. The good news is that the labour market is stabilising and there is evidence of a pick-up in business and consumer confidence.
New mortgage approvals fell sharply in January but this was down to the end of the Stamp Duty holiday and poor weather. House prices also dipped in January, according to Nationwide and Halifax indices, but this needs to be placed in context as it follows several consecutive months of growth.
We expect average mainstream property prices to edge a bit lower this year but this will eventually result in a more stable recovery in the market. If prices continued to rise at the rate they have been doing, we could have been in danger of another bubble.