MORTGAGE approvals in the United Kingdom have dropped to the lowest since at least 1999 and manufacturing has contracted for a fourth month as the economy is staggering toward a recession.
Banks granted 33,000 loans for house purchase in July, the fewest since comparable data began nine years ago, the Bank of England said in London yesterday.
An index based on a survey of factories by the Chartered Institute of Purchasing and Supply stayed below 50 in August, indicating contraction.
Prime Minister Gordon Brown will announce measures to shore up the economy as the Bank of England battles the fastest inflation in more than a decade, which may prevent it from cutting the main interest rate this week.
The squeeze on lending has stalled economic growth and damaged the housing market, where prices fell last month by the most since at least 2001, Bloomberg News reported.
"We're in for a prolonged period of weak growth that is likely to go into a recession," said Amit Kara, an economist at UBS AG in London, who formerly worked at the central bank.
"There's an argument for cutting rates this week but I don't think they will because of increasing inflation pressures." The pound fell to the lowest level since April 2006 against the dollar yesterday. The currency traded at US$1.80 yesterday in London.
The value of home loans rose to 3.23 billion pounds (US$5.82 billion) in July from 3.14 billion pounds in June. The figure is a huge fall from 9.35 billion pounds recorded in July last year.
Hometrack Ltd said yesterday that the average cost of a residential property in England and Wales slipped 5.3 percent from a year earlier in August. A recovery in prices is "still some way off," said Richard Donnell, director of research. The slump has led to a collapse in support for Brown since he took over from Tony Blair 15 months ago and reduced the popularity of the ruling Labour Party to the lowest since it took office.
Brown will hand UK local government authorities money to buy homes, a person familiar with the plan said last week, as part of a package to prevent the economy entering its first recession since 1991.
Chancellor of the Exchequer Alistair Darling said in an interview last Saturday that the UK is facing "arguably the worst" economic crisis in the last 60 years.