October 30, 2009 7:57 pm

Too many brown leaves to assure upturn

Remember green shoots? Commentators could not get enough of them. Now Recovery Watch is hard pressed to find any that are genuine, and even the sturdiest of these contain seeds of worry.

Take the latest Nationwide house price index, which on Friday showed the sixth consecutive monthly rise in October, leaving house prices actually higher than they were a year earlier.

But the rise was much smaller than in any of the previous three months, and prices remain more than 13 per cent below their peak.

Moreover, the data coincided with much stronger-than-expected mortgage approvals in September. The worry has been that recent price rises reflect low supply rather than deep demand – as more properties go onto the market, inviting more mortgage applications, house price inflation may fade, especially as lenders show no sign of relaxing credit criteria.

Perhaps the most encouraging news about housing is that the capital market may be reopening to it. Nationwide this week priced a £3.5bn tranche of mortgage-backed securities, the second such issue in a month.

A reopened capital market could help increase the amount of mortgage finance available, thereby boosting demand for homes.

Meanwhile, the Bank of England conceded that its much-heralded programme to funnel lending to non-investment grade companies that cannot tap the capital markets has failed to attract a single borrower since it was set up in August. It is too expensive, too cumbersome and too risk averse in design, credit analysts and prospective users say.

Worse, there is no sign that the nearly £175bn that the Bank has poured into banks through quantitative easing is either expanding the money supply or turning into stronger lending to companies that form the backbone of the British economy – both measures for September are down.

There was better news on commercial property , however. Commercial property capital values rose over the third quarter of this year, and there are signs that retail warehouse parks are seeing values bounce back, according to Investment Property Databank.

Better news, too, from retailers surveyed by the CBI, who are at their most optimistic about sales since July 2007. But the survey showed that wholesalers continue to struggle.

On the high street a slew of retailers face restructuring or receivership, from the off-licence chain First Quench putting 6,500 jobs at risk, to Blacks Leisure, whose losses more than doubled.

Illustrating how the recession has hit the leisure sector, Globe Pub Group is also on the verge of administration.

All told, the green shoots have too many brown leaves.

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