U.K. Home Prices Will Stagnate at Best, Nationwide Says: Economy

U.K. house prices fell in September and will at best stagnate over the next year as a weak labor market undermines confidence, Nationwide Building Society said.

The average cost of a home dropped 0.4 percent from August, the Swindon, England-based lender said in a statement today. From a year earlier, values fell 1.4 percent to an average 163,964 pounds ($264,700). Separately, construction output fell for a second month in September, the first back-to-back contraction in almost three years.

The data add to evidence of an uneven recovery after reports this week showed lending fell in August and manufacturing shrank in September. A report tomorrow will show growth in services probably slowed last month and the Bank of England is seen maintaining its bond-purchase plan a day later as policy makers assess the outlook for the U.K. economy and the euro-area debt crisis.

“Given the fragile nature of the economy, the huge squeeze on real incomes and offsetting impact of ultra-low interest rates, this gradual downward drift in house prices makes sense,” Ed Stansfield, an economist at Capital Economics Ltd. in London, said in a research note. “Boosting confidence will take a much stronger growth in the economy and real incomes, both of which seem some way off.”

Bank of England Markets Director Paul Fisher said last week that third-quarter economic growth will be “very strong.” Still, that will partly reflect a rebound from the impact of an extra public holiday on gross domestic product in the second quarter. The British Chambers of Commerce said today that “U.K. economic performance remains weak and inadequate.”

Property Stagnation

The Nationwide data showed that house prices fell 0.5 percent in the third quarter compared with the previous three months. Property research company Hometrack Ltd. yesterday said home values declined for a third month in September, slipping 0.1 percent.

Nationwide Chief Economist Robert Gardner said he expects a gradual economic recovery over the coming 12 months, with house prices “remaining relatively flat or declining only modestly over the same period.”

“Labor-market developments will remain of paramount importance,” he said. “There are grounds for caution on this front, as the unusual combination of rising employment and declining economic activity that was evident in the first half of 2012 is unlikely to be sustained.”

Construction Weakness

A construction index fell to 49.5 in September from 49 in August, Markit Economics and the Chartered Institute of Purchasing and Supply said today. A reading below 50 indicates contraction. New business at building companies fell at the second fastest pace since April 2009. Barratt Developments Plc (BDEV), Britain’s largest homebuilder by volume, said on Sept. 12 that there is “ongoing economic uncertainty in the U.K. market.”

An index of manufacturing fell to 48.4 from 49.6, Markit said yesterday. A services gauge will decline to 53 from 53.7, according to the median of 29 estimates in a Bloomberg News survey. Markit will publish that report at 9:30 a.m. tomorrow.

In the euro area, data today showed producer-price inflation accelerated to 2.7 percent in August from 1.6 percent in July as energy costs surged. Spanish unemployment rose for a second month in September, with the number of people registering for jobless benefits climbing 79,645 from August to 4.7 million, according to the Labor Ministry in Madrid.

RBA Rate Cut

Elsewhere, Australia’s central bank resumed cutting rates today to revive demand outside of a resource boom that may crest at a lower level than previously expected. The Reserve Bank of Australia lowered the overnight cash-rate target by a quarter percentage point to 3.25 percent. The decision to end a three- meeting pause was predicted by nine of 28 economists in a Bloomberg survey, with the rest forecasting no change.

“Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago,” Governor Glenn Stevens said. “Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks.”

The Bank of England will announce its latest policy decision on Oct. 4 and will hold its bond-purchase target at 375 billion pounds, according to all 40 economists in a Bloomberg survey. Policy makers will also hold the key interest rate at a record low of 0.5 percent.

The European Central Bank will leave its benchmark rate at 0.75 percent the same day, said 49 of 52 economists in a separate survey. The rest predict a cut to 0.5 percent.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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U.K. House Prices Fall as Nationwide Predicts Stagnation at Best

Simon Dawson/Bloomberg

The property market remains under pressure as the economy struggles to recover from a recession, undermining consumer confidence, and banks curtail lending to strengthen balance sheets.

The property market remains under pressure as the economy struggles to recover from a recession, undermining consumer confidence, and banks curtail lending to strengthen balance sheets. Photographer: Simon Dawson/Bloomberg