Neither Rhyme Nor Reason

Jonathan Samuels - 17 May 2011

So, the wiggle room afforded to the Bank of England by last month's surprise drop in inflation has just been taken away.

With consumer price inflation jumping by half a per cent over the course of the past month, according to figures out today from the Office for National Statistics, the Bank of England is once again on the back foot.

After briefly losing their momentum, apologists of a rise in Bank Rate, not least arch hawk Andrew Sentance, have been given a major boost. Inflation is once again a clear and present danger.

For the time being anyway.

If there's one definitive trait to the current economic climate, it's that economic data can be so mixed that it's hard to place too much emphasis on any one piece of news.

For example, in Q4 2010, GDP fell by 0.5%, but in the first quarter of 2011 it rose by the same amount. Likewise, last month, inflation fell by 0.4%, while this month it rose by 0.5%. The economy has neither rhyme nor reason at the moment.

The markets are aware of this. While Sterling initially spiked after the inflation data - and rightly so as rising inflation should, in theory, make rate rises more likely - it fell back just as quickly. The markets have had so many false starts in recent months that even more disruptive pieces of data such as today's are taken with a pinch of salt.

Just as there is no logic to the economy, so too there is a lack of logic in the property market. The latest data from the Communities and Local Government out today showed prices rose by 1.2% in March and 0.9% over the past year. Given the weakness in demand, where's the logic in that? Low transaction levels will almost certainly have something to do with it, while maybe sellers' intransigence around asking prices is paying off.

One thing the CLD data did underline - and categorically so - is the extent of price variation in different areas of the country. Northern Ireland and wales are majorly in the red, whereas London is defying broader economic conditions and continuing to do well, rising 5.6% over the past year. Demand in the capital is relatively strong, while supply as ever is weak.

It's probably time for us to stop talking about a single UK property market and talk purely of local markets, such is the difference between prices in different areas of the UK.