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Not what the doctor ordered

May’s mortgage approvals figures from the Bank of England were absolutely dire. The figures from the BBA the previous week were bad enough, a 20 per cent fall on the previous month and a 56 per cent fall on May last year, but the figures for total mortgage lending, including the building societies and specialist lenders, are even worse, with a 28 per cent fall on April and a 64 per cent fall on May last year.

However, the real figures will be less bad because the BofE initially only announces doctored, or seasonally adjusted to use the technical term, figures. In a market affected much more by other factors, such as high real interest rates and a shortage of mortgage finance, than normal seasonal influences, it is madness to focus solely on the seasonally adjusted figures.

The assumption for May is that it will be a stronger month than average in the property market and hence the impact of the “seasonal adjustment” is that the already weak figures will have been massaged even lower, thus causing even more gloomy reporting than the real figures would have caused.

The BofE releases real figures at a later stage but does not press release them and hence they rarely get any coverage. I assume that to calculate the seasonally adjusted figures they start with the real figures and so it is difficult to see why both sets of figures cannot be released at the same time.

I suspect the answer is that economists love their seasonal adjustments and would prefer people to focus solely on them. However, looking at last year’s figures from the BofE, the total amount of seasonally adjusted mortgages approved for house purchase was less than the real amount. Admittedly, the difference was only 9,000 on a total of 1,260,000 but why should there be any difference over the course of a whole year?

Looking again at both last year’s real figures and the doctored ones, the real May figures were 18 per cent higher than the doctored ones, which suggests that the real number of mortgages approved for house purchase in May this year was around 50,000 rather than the 42,000 reported.

Likewise, in June last year, the real figure was 19 per cent higher than the doctored figure, in July 12 per cent higher and in August 8 per cent higher. The differences are then smaller until December, when the real figure was only 69 per cent of the doctored figure.

No doubt this year’s doctoring makes similar assumptions to last year and so we can “look forward” to another three months of headlines comparing misleading month on month figures as a result of the misleading way in which the BofE reports mortgage approvals figures.

Most of the media report these figures as gospel, with no reference to fact that they are doctored. Even if reference to that was made, it would not mean much if the scale of the doctoring was not reported. Maybe the BofE takes the view that putting as negative a spin as possible on the figures will help inflation expectations.


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Valuable lessons

Speaking at the Investment Management Association’s annual dinner last month, IMA Chairman Robert Jenkins told the investment management industry and its guests that even though the credit crunch was not | yet over, it was not too soon for all those caught up in it to learn a few lessons.


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