Rising house prices help economy to close in on ‘escape velocity’

After a surprisingly strong services survey last week, the figures suggest incoming Bank of England Governor Mark Carney will inherit an economy already on the way to what he has termed “escape velocity”.

Britain’s economy grew 0.3 per cent in the first quarter of this year and looks on track to achieve possibly double that between April and June. Still some way behind the United States, Britain seems to be pulling away from its eurozone neighbours.

“It’s a strong picture and it will make it very hard for Carney and the other eight members of the Monetary Policy Committee to justify more stimulus,” said Brian Hilliard, UK economist at Societe Generale.

A survey from the Royal Institution of Chartered Surveyors showed British house prices rose at their fastest pace last month since June 2010, while new buyer enquiries jumped to levels last seen in 2009.

The Government’s Help to Buy scheme, announced in March, and its Funding for Lending scheme, launched with the Bank last summer, have both allowed buyers with small deposits get on the property ladder.

A buoyant housing market typically supports consumer spending but concerns are growing that house prices are getting frothy, particularly in London and the South-East.

RICS said its members each reported 17.9 homes sold on average in the three months ending in May, the highest reading since January 2010.

“More people decided to get out there and view property, and more transactions went through than in quite some time,” said Peter Bolton King, RICS global residential director.

Chartered surveyors are continuing to sell an encouraging number of homes across Yorkshire and Humber, added RICS. Separate figures from the Office for National Statistics showed industrial output, which makes up around 16 per cent of Britain’s economy, rose in April for a third consecutive month.

Industrial output, which weighed on growth throughout 2012, looks set to contribute at least 0.1 percentage points to GDP in the second quarter, economists said.

Still, the services sector looks set to remain the biggest driver of the recovery.

The Purchasing Managers’ Index for services last week jumped two full points to 54.9 in May, underpinned by the sharpest rate of new business growth in more than three years.

The run of robust data has already pushed gilt yields higher.

Ten-year yields have risen 60 basis points since early May.