Sept. 1 (Bloomberg) -- U.K. house prices fell the most in 10 months in August as a slowing economic recovery threatens to undermine demand, Nationwide Building Society said.
The average cost of a home dropped 0.6 percent to 165,914 pounds ($269,800) from July, the Swindon, England-based customer-owned lender said in an e-mailed report today. From a year earlier, values were down 0.4 percent.
While a shortage in the supply of homes for sale and record-low Bank of England interest rates have supported prices, the housing market is struggling to gain momentum as banks restrict lending and Britons’ spending power is eroded by inflation. The British Chambers of Commerce cut its economic growth forecast today as the U.S. recovery slows, Europe’s debt crisis escalates and Britain’s government implements the biggest fiscal squeeze since World War II.
“We continue to expect house prices to move sideways or drift modestly lower over the remainder of 2011, although we recognize that the downside risks have increased,” Nationwide Chief Economist Robert Gardner said in the report. “The major risk for the housing market is that weak economic growth could lead to a further deterioration in the labor market.”
U.K. consumer sentiment fell for a third month in August as Britons grew more pessimistic about the economy, a report from GfK NOP Ltd. yesterday showed. An index of sentiment slipped 1 point from July to minus 31, while a gauge of households’ expectations for the economy over the coming 12 months fell 4 points to minus 31, the lowest in six months, GfK said. Jobless claims increased the most in more than two years in July.
The Bank of England left its benchmark interest rate at 0.5 percent last month and held its bond-purchase plan at 200 billion pounds. The central bank will keep the rate on hold until August 2012, when it will raise it by 25 basis points, BCC Chief Economist David Kern said in an e-mailed statement today. The London-based lobby group said in May that the bank would increase the rate this year.
The BCC sees U.K. gross domestic product rising 1.1 percent this year and 2.1 percent in 2012, cutting a June projection for 1.3 percent and 2.2 percent respectively.
Data today showed British manufacturing shrank the most in more than two years in August as demand from domestic and overseas customers weakened. A gauge by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 49, the lowest in 26 months, from 49.4 in July. A level below 50 indicates contraction. New orders fell the most in almost 2 1/2 years and employment declined for the first time in 17 months.
“Given that our key export markets in the U.S. and the euro zone are under more pressure, the recoveries are more fragile than we thought, then clearly the risks to the U.K. economy are increasing, and that does pose some risks to the housing market,” Gardner said in an interview with Francine Lacqua on Bloomberg Television’s “Countdown” program today. “It’s going to take a long time for demand for housing to pick up significantly.”
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