Good economic news could be bad for housing market - warning

Experts are warning that the weekend’s better than expected economic news could indirectly hurt the housing market.

The UK economy grew by 0.2 per cent in the second quarter of the year, according to government data released over the weekend; the figures are a slight improvement on the first quarter of 2023, when the economy grew by 0.1 per cent. 

Separate figures for the month of June alone showed a 0.5 per cent increase over May, but government sources say this may be down to the absence of Bank Holidays - there were two in May and none at all in June.

But this relatively good news may be double edged, with mortgage experts expressing concern that the growth will trigger more interest rate rises to curb what some see as excessive spending.

John Choong of investment platform InvestingReviews says: “Britons should be wary as the better economic outlook could push the Bank of England to take a more hawkish approach. This could see mortgage rates reverse course, having seen some relief over the past weeks. Also, potential GDP growth will be heavily challenged by strong headwinds from sky-high interest rates and high taxes.”

And Riz Malik, director of R3 Mortgages, adds: “Let's just hope the Bank of England doesn't consider the growth too rapid and use it as a pretext for more rate hikes. While it's challenging to get overly enthusiastic about growth numbers beginning with a zero, it underscores the resilience of the UK economy. Hopefully, the inflation data on [Wednesday] August 16th will also exceed expectations."

At the end of last week Halifax sharply cut rates on some of its fixed mortgage deals with reductions of up to 0.71 percentage points, with a five-year fixed deal priced at 5.39 per cent from 6.10. 

NatWest, HSBC and Nationwide have also cut some rates, raising hopes that the Bank of England's base rate might not stay as high for as long - it’s at 5.25 per cent after 14 successive increases. 

This week sees the publication of the latest inflation figures.

Whilst most analysts expect a fall, a warning has come in recent days from the National Institute of Economic and Social Research, which says inflation will not return to its official 2.0 per cent target before 2028 at the earliest.

NIESR forecasts inflation will fall from 7.9 per cent now to 5.2 per cent by the end of 2023 but will be slower to drop thereafter, averaging just above the BoE's 2.0 per cent target throughout 2025, 2026 and 2027.