Reply #55: U.K. Mortgage Rates Surge, Consumer Confidence Slumps

[Ghost Dog]

July 9 (Bloomberg) -- U.K. mortgage rates surged to the highest in eight years and consumer confidence dropped as the worst housing slump in three decades deepened.

``This is doom and gloom,'' said Alan Clarke, an economist at BNP Paribas SA in London. ``The housing market is in freefall and unemployment is rising.''

The rate on a home loan fixed for two years rose to 6.63 percent in June, the highest since February 2000, the Bank of England said today in London. The 0.37 percentage point increase from a month earlier is the biggest since October 2003. Nationwide Building Society's index of consumer sentiment dropped to the lowest level since the survey began in May 2004.

The U.K. is skirting a recession as house prices fall, oil costs rise to a record and lenders refuse to pass on the Bank of England's three interest-rate cuts since December. Policy makers, who make a rate decision tomorrow, said last month that they considered increasing borrowing costs after inflation accelerated to 3.3 percent, the fastest pace in at least a decade.

``The Bank of England's credibility is in question with the worst peak in inflation in its history, but there are a lot of reasons not to hike now,'' BNP's Clarke said.

Rate Decision

All but one of 49 economists in a Bloomberg News survey predict the Bank of England will keep the key rate unchanged at 5 percent tomorrow. Nationwide said there is a 20 percent chance that the bank will raise interest rates.

Evidence of the economy's deterioration sent the pound lower against the euro today. The currency fell to 79.59 pence from 79.57 pence yesterday.

House prices fell the most since 1992 in June, Nationwide said July 1. Unemployment may rise 58 percent to 1.3 million by the middle of 2010, the Centre for Economic and Social Inclusion, a government-supported research group, predicted this week.

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