In June, UK mortgage approvals hit 64,170, exceeding the expected 63,000. The previous month’s figure was updated from 63,030 to 63,290. Net consumer credit rose to £1.4 billion, surpassing the forecast of £1.2 billion, up from £0.9 billion earlier.

Mortgage Debt Borrowing

UK individuals borrowed an additional £3.1 billion in mortgage debt in June, bringing the total to £5.3 billion. In May, borrowing increased by £2.8 billion, leading to a total of £2.2 billion. Consumer credit growth in June was 6.7% compared to last year, up slightly from May’s 6.5%. We find the latest consumer credit and mortgage information surprisingly robust. This points to an underlying economic strength that could keep inflation persistent. It suggests that the Bank of England may need to maintain a tighter policy longer than the market expects. In the coming weeks, we believe the SONIA futures curve will show a lower chance of near-term rate cuts. This follows trends seen during the post-pandemic recovery when strong consumer data led central banks to adopt a more hawkish approach. Therefore, preparing for higher short-term rates seems like a smart move.

Impact On Currency And Equities

This data is positive for the pound, especially since the Bank of England is battling ongoing services inflation, which the ONS reported as 5.7% for the year leading up to June 2024. This domestic strength could lift GBP/USD, and we’re considering strategies like buying call options to benefit from potential gains. However, a stronger pound may negatively impact UK equities. The possibility of sustained high interest rates might squeeze company profits, especially in sensitive sectors like construction and retail. We are exploring FTSE 250 put options as a possible hedge since this index is more tied to the UK economy. This unexpected economic strength adds more uncertainty to the Bank of England’s next steps. We expect an increase in implied volatility for both short-term rates and sterling currency pairs. In this scenario, strategies like buying straddles on GBP/EUR could be appealing, as they profit from significant price movements in either direction. Create your live VT Markets account and start trading now.

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