The Bank of England has revised up its UK growth forecast from 3.4 per cent to 3.5 per cent this year as unemployment fell to 6.5 per cent in the second quarter.
The Bank’s inflation report, published today, also reveals the growth forecast for 2015 has risen from 2.9 per cent to 3 per cent as employment levels rose 250,000 in the three months to May.
Unemployment dropped from 6.8 per cent at the end of Q1 to 6.5 per cent at the end of Q2, although the BoE reports “continued weakness” in real wages.
Short-term market interest rates have risen slightly since May, and the Bank says market participants expect base rate to rise from around Q1 2015 and to settle at around 2.25 per cent within three years.
In its inflation report, published today, the Bank says the average monthly volume of mortgage approvals in Q2 was 64,000, down from its May forecast of 70,000 approvals per month.
The Bank had also previously predicted mortgage approvals would rise to 85,000 per month by the fourth quarter of 2014, but this has been reduced to 75,000 per month.
The report says the new rules introduced by the Mortgage Market Review in April “could have weighed on approvals as banks introduced new processes or trained staff”.
It says despite MMR constraints easing three months on from implementation, the new regulations could have a more persistent impact “if it affects the availability or terms of credit for some borrowers”.
House prices have risen on track with May forecasts, growing at a rate of 1 per cent on a monthly basis over Q2.