U.K. House Prices Fall on Economic Outlook, Inflation
The average cost of a home slipped 0.1 percent from December to 161,602 pounds ($259,144), Britain’s biggest customer-owned lender said in an e-mailed report today. Economists had predicted a drop of 0.4 percent, according to the median estimate of 18 forecasts in a Bloomberg News survey. On the year, prices fell 1.1 percent.
“The continued uncertain outlook for the economy will probably continue to keep many buyers on the sidelines,” Nationwide chief economist Robert Gardner said in the report. “High inflation readings reinforce the notion that the housing market is likely to remain sluggish in 2011” as price growth outpaces wage increases, he said.
U.K. inflation accelerated to 3.7 percent in December, almost twice the Bank of England’s 2 percent target. At the same time, plummeting consumer confidence in the face of the biggest budget cuts since World War II and tight lending conditions is deterring potential homebuyers.
Recent reports suggest the housing market is weakening. The Land Registry yesterday said that home prices fell 0.2 percent in December from the previous month. Hometrack Ltd. (UKHMMM) said last week that values dropped 0.5 percent in January as demand plunged the most in three years.
U.K. consumer confidence fell the most since 1994 last month, a report by GfK NOP Ltd. showed on Jan. 28, while the economy unexpectedly shrank in the three months through December. Mortgage approvals fell more than economists forecast in December to the lowest since March 2009, with lenders granting 42,563 loans to buy homes, compared with 47,287 the previous month, the Bank of England said today in London.
The pound rose as much as 0.8 percent to $.16142 today and was trading at $1.6108 as of 10:33 a.m. in London after an index of U.K. manufacturing surged to a record level in January.
The central bank kept its benchmark interest rate unchanged at a record low 0.5 percent last month after a meeting in which two of its nine policy makers voted to increase the rate. Governor Mervyn King said in a speech last week the inflation rate may rise above 4 percent in coming months.
“Persistent stronger-than-expected inflation figures also increase the risk of a weaker housing market performance,” Gardner said. It “could prompt the Bank of England to raise interest rates more aggressively than currently expected, or at a time when demand in the wider economy is still fragile.”
To contact the reporter on this story: Svenja O’Donnell in London at firstname.lastname@example.org.
To contact the editor responsible for this story: Craig Stirling at email@example.com