U.K. house prices rose the most in more than 2 1/2 years in August as a resilient employment market helped overcome the impact of a shrinking economy, Nationwide Building Society said.
The average cost of a home rose 1.3 percent from July, the biggest monthly increase since January 2010, the Swindon, England-based customer-owned lender said in an e-mailed report today. The average price in August was 164,729 pounds ($260,400), down 0.7 percent from a year earlier.
“Given the difficult economic backdrop, the extent of the rebound in August is a little surprising,” Nationwide Chief Economist Robert Gardner said. Still, “conditions remain fairly stable. This may be explained by the surprising resilience evident in the U.K. labor market, with further increases in employment in recent months.”
The Bank of England and the government are trying to stimulate the economy by boosting credit through their Funding for Lending Scheme. While the recession deepened in the second quarter, data this month showed jobless claims unexpectedly fell in July and a wider measure of unemployment dropped to its lowest in a year.
The pound was little changed against the dollar and was trading at $1.5787 as of 8:10 a.m. in London. U.K. government bonds were also little changed, leaving the yield on the 10-year gilt at 1.45 percent.
Policies to support the availability of credit and lower the cost of borrowing “should help to provide support” to the property market, Gardner said. “House prices are expected to remain fairly stable over the next two years.”
In the three months through August, house prices fell 0.5 percent compared with the previous three months, according to the Nationwide report.
A report by Hometrack Ltd. this week showed house prices fell 0.1 percent in August, declining for a second month. The Bank of England said yesterday that lenders granted 47,312 loans to buy homes, compared with 44,124 in June. The total remains below the average for the previous six months of 50,729.
The Bank of England cut its growth forecasts earlier this month and said the outlook is “unusually uncertain.” Recent indicators suggest the economy is still struggling to recover amid the euro-area turmoil and weak domestic confidence, with gauges of both manufacturing and services falling in July.
Separately, the British Chambers of Commerce cut its U.K. economic forecasts and now predicts the economy will contract this year for the first time since 2009. Gross domestic product will fall 0.4 percent in 2012 and expand 1.2 percent in 2013, the BCC said. It previously estimated growth of 0.1 percent and 1.9 percent respectively.
An index of British consumer sentiment compiled by GfK NOP Ltd. stayed at minus 29 in August, data today shows. The gauge has been in a range of minus 29 to minus 31 for the past eight months. A measure of Britons’ economic outlook for the next year rose 3 points to minus 27 and a measure of the climate for making major purchases dropped 5 points to minus 31.
Yesterday, the Confederation of British Industry slashed its forecasts and said “downside risks” remain.