House prices fall as sales at record low

Published 12th Aug 2008

House prices fell a little less than expected in July but sales per real estate firm hit a record low and retail sales weakened again, reports showed on Tuesday, reinforcing evidence of a marked economic slowdown.

However, economists still argue the Bank of England will not be in any hurry to cut interest rates because inflation is running at its highest level since the central bank was granted the power to set borrowing costs in 1997.

Inflation figures for July are due at 9:30 a.m., with analysts expecting an annual reading of 4.1 percent -- more than double the Bank's 2 percent target.

The Bank, which publishes its quarterly inflation forecasts on Wednesday, is worried cutting rates could raise the risk of inflation remaining well above target for much too long, while hiking could cause the first recession since the early 1990s.

"The BoE's Inflation Report tomorrow is likely to warn about the increased risk of a UK recession as a result of a combination of high energy costs, a rising effective cost of borrowing, along with falling house prices and weaker equities," said Lena Komileva, an economist at Tullett Prebon.

The Royal Institution of Chartered Surveyors said its monthly house price balance rose to a seasonally adjusted -83.9 last month from -86.9 in June, the third consecutive monthly rise but still indicative of sharp falls in house prices.

Analysts had predicted a balance of -90.0.

The number of completed property sales per surveyor in the three months to July slumped 40.4 percent on the year to just 14.4, the weakest since the RICS survey began in 1978.

Even so, RICS said the market may be starting to stabilise though most indicators also point to worsening conditions in the housing market as a decade-long boom quickly turns to bust.

House prices have fallen by more than 10 percent in the last year, data from the biggest mortgage lender showed last week, a bigger fall than seen at any time during the housing market crash of the early 1990s.

Mortgage approvals figures -- at record lows -- are also pointing to further sharp falls in house prices.

A survey from the British Retail Consortium showed consumer spending continued to weaken as households face higher living costs and falling house prices.

Retail sales fell 0.9 percent on a like-for-like basis on the year in July -- the fourth fall in the last five months after a two-year run of growth, the BRC said.

"We expect consumer spending to continue to moderate over the coming months, meaning that the economy is more likely than not to contract modestly over the second half of the year," said Howard Archer, an economist Global Insight.

Source: ' reuters '

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