Thursday, August 11, 2011
Strong Housing Gains Driving Economic Growth
Consumer spending, increased investment and a hot housing market have led the UK economy to beat first quarter predictions. The GDP is up almost 3% from last year at the same time and is 2.8% higher than earlier forecasts had expected. Fuelling the economy has been an growing housing market, where housing values continue to climb, despite recent rate hikes that the Bank of England had hoped would cool things off a bit. The interest rates of almost 6% are at a 6 year high, but investors and home buyers seem to be ignoring rising rates. Home buyers in the last year have almost universally reported substantial and record increases on the equity value of their homes, and as long as housing values continue to rise, analysts expect that demand for housing and other loans will remain strong. Consumer spending is up at 0.6% over the last quarter, and investment has risen by almost 2%. Services are by far the largest sector of the economy, and this sector has also shown strong growth. Analysts say that the real engine behind the economic growth is a housing market that is giving people the confidence to spend. With housing values having risen at 13% over the last year, there are a lot of home owners with some extra money, and extra confidence right now. Financial services have shown strong growth, partly in response to an increasing demand for equity and home based loans, as people move to take advantage of the rise in equity values, and the dramatic housing value increases that have allowed them a bigger financial cushion to work with. Many advisors are forecasting another interest rate rise to combat the strong economy and increasing inflation, and many savvy loan seekers are using the current relatively low rates to lock into a fixed equity or home loan now, before the likely higher rates to come. The housing market shows no signs of cooling, even with central planning measures, and the economy should continue to grow driven by a housing market engine that is pushing up consumer confidence and spending.