U.K. House Prices Face Further Downward Pressure as Consumers are Squeezed

U.K. house prices were unchanged in January, according to property researcher Hometrack Ltd., which said “downward pressure” on prices will continue amid a squeeze on consumers.

From a year earlier, values fell 1.6 percent in January, the London-based firm said in an e-mailed report today. Gauges of new properties coming on the market and demand both declined and the underlying trend is one of “tightening supply and weakening demand,” it said.

The U.K. economy shrank 0.2 percent in the fourth quarter as inflation, rising unemployment and the euro-area debt crisis damped consumer spending. Bank of England Governor Mervyn King said last week that consumers faced a “ferocious squeeze” in 2011 and the recovery is likely to be “long and uneven.”

“Demand remains constrained by the uncertain economic outlook,” Richard Donnell, director of research at Hometrack, said in a statement. “The net effect will be a continued negative balance between supply and demand, pointing to further downward pressure on prices in the months ahead.”

Demand for houses dipped 11 percent in the second half of 2011, while the supply of property for sale fell 7 percent, the most since 2009, Hometrack said.

In London, prices rose 0.1 percent in January. O’Donnell said the capital “looks set to buck the national trend again” due to overseas buyers boosting prices in prime areas.

The national survey showed that sellers are accepting an average 7.5 percent reduction on asking prices for their properties. The number of sales agreements plunged 14.3 percent this month, after a 0.9 percent drop in December, while the average selling time rose to 10.2 weeks from 10.1 weeks.

The market is “dogged by uncertainty,” Donnell said. “Given the pressure on household finances and the outlook for the wider economy as a whole, we expect only a modest improvement in levels of demand in the coming months.”

To contact the reporter on this story: Colm Heatley in Belfast at cheatley@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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