The British Bankers' Association (BBA) is expected to report on Tuesday that mortgage approvals for house purchases rose modestly to 39,000 in March from 35,276 in February and an eight-month low of 35,154 in January. Even so, this would still be down appreciably below the 27-month high of 45,690 in December. Furthermore, it would be well below the average monthly level of 60,027 seen since 1997.

Meanwhile, the Nationwide lender is expected to report on Thursday that house prices rose 0.5% month-on-month in April. This would push the year-on-year increase up to 9.8% from 9.0% in March, reflecting the fact that house prices fell 0.3% month-on-month in April 2009. Latest Nationwide data show that house prices rose 0.7% month-on-month in March, which just failed to offset the 0.8% decline in February that had been the first monthly fall in house prices since April 2009.

We suspect that house prices will be erratic through 2010, and may very well be no better than flat over the year—particularly if more properties come on to the market, thereby pushing the supply/demand balance more towards buyers from sellers. Latest survey evidence — including from the Royal Institute of Chartered Surveyors and Rightmove—suggests that more properties are indeed now coming on to the market.

We believe that the overall appreciable house prices rises that have been seen since early 2009 have been out of kilter with the overall economic fundamentals. This is even allowing for the support to the housing market coming from low mortgage interest rates and more affordable prices due to the pretty substantial fall in house prices from their October 2007 peak through to their early-2009 trough. Although the Bank of England may well hold off from raising interest rates until 2011, the overall economic environment (notably high unemployment and low earnings growth) is still far from supportive for house prices, while credit conditions remain pretty tight. In addition, house price/earnings ratios have moved back up in recent months.

Some support for the housing sector will come from the government introducing in the March budget a stamp duty holiday for the next two years for first-time buyers on all properties costing up to £250,000.

CBI Distributive Trades Survey for April

The Confederation of British Industry (CBI) distributive trades survey for April (out on Tuesday) is forecast to show that the balance of retailers reporting that sales were up year-on-year climbed to +17% in April from +13% in March. The balance had previously spiked up to a 33-month high of +23% in February from -8% in January, but the performance in these two months was heavily distorted by sales rebounding in February after being hard hit in January by the snow and freezing weather conditions. A reading of +17% in April would be modestly above the +13% level seen in both December and November 2009.

The underlying impression we get is that consumer spending has firmed modestly overall in recent months. Nevertheless, we still believe that the upside for consumer spending—and hence overall economic growth—will be limited in 2010 as households still face very challenging conditions. These notably include high unemployment and still falling employment, low underlying earnings growth, elevated debt levels, and January's value-added tax hike. Meanwhile, still serious uncertainties about the economic outlook and jobs are likely to maintain many consumers' desire to improve their personal finances. Consumers will also be wary that further out they are very likely to face higher taxes as part of the further major corrective action that will be needed to rein in the government finances, whatever the outcome of the May 6 general election. At least though, the Bank of England seems unlikely to raise interest rates in the near term at least, so low mortgage rates should continue to support consumers' purchasing power.

Consumer Confidence in April

The GfK/NOP consumer confidence index (out overnight Thursday/Friday) is expected to have weakened modestly further in April after suffering a slight relapse in March. Specifically, we forecast the confidence index to have edged down to -16 in April from -15 in March and -14 in February. This would still be up from -19 at the end of 2009. Confidence has actually been rather erratic since the index trended up to a 21-month high of -13 in October 2009 from -37 back in January 2009. The consumer confidence index remains appreciably below the long-term average of -8.

Confidence is expected to have weakened marginally in April primarily due to heightened political uncertainty. With the outcome of the May 6 general election becoming hard to call, households are likely to be uncertain and concerned about how they will be affected by the eventual outcome, particularly given the high profile debate about how quickly fiscal policy needs to be tightened and what form. The fall in confidence is expected to have been limited by increased optimism over growth prospects due to generally improved recent economic data and surveys

27Apr - BBA Loans for House Purchases, March (000s): 39.0

27 Apr - CBI Distributive Trades Reported Volume of Sales, April: +17%

29 Apr - Nationwide House Prices, April (Month-on-Month): +0.5%

29 Apr - Nationwide House Prices, April (Year-on-Year): +9.8%