In June, UK mortgage approvals reached 64,170, surpassing the expected 63,000. The previous month’s figure was revised from 63,030 to 63,290.
Net consumer credit increased to £1.4 billion, exceeding the anticipated £1.2 billion. This followed a previous total of £0.9 billion.
Mortgage Debt Borrowing
Mortgage debt borrowing by UK individuals rose by £3.1 billion to £5.3 billion in June. In contrast, May showed an increase of £2.8 billion, bringing the total to £2.2 billion.
Consumer credit growth for June was 6.7% year-on-year, which was higher than May’s 6.5%.
We see the latest consumer credit and mortgage data as surprisingly strong. This suggests underlying economic momentum that could keep inflation sticky. This reinforces the view that the Bank of England may need to maintain a restrictive policy for longer than the market currently anticipates.
In the coming weeks, we anticipate the SONIA futures curve will price in a reduced probability of near-term rate cuts. This mirrors patterns seen during the post-pandemic recovery, where strong consumer data forced a hawkish pivot from central banks. Therefore, positioning for higher short-term rates could be a logical response.
Impact On Currency And Equities
For the pound, this data is supportive, especially as the Bank of England is already fighting persistent services inflation, which the ONS reported was 5.7% in the year to June 2024. This domestic strength could push GBP/USD higher, and we are considering strategies like buying call options to capture potential upside.
However, what is good for the pound may not be good for UK equities. The prospect of higher-for-longer interest rates could pressure company profits, particularly in rate-sensitive sectors like housebuilders and retail. We are looking at FTSE 250 put options as a potential hedge, as this index is more exposed to the domestic UK economy.
This unexpected economic strength introduces more uncertainty into the Bank of England’s next move. We expect to see a rise in implied volatility in both short-term rates and sterling currency pairs. This environment could make strategies like buying straddles on GBP/EUR attractive, profiting from a large price move in either direction.
