U.K. house prices fell in February, erasing a gain the previous month, according to Halifax, which said the economic outlook may damp property demand this year.
Prices fell 0.9 percent from January, when they rose 0.8 percent, the mortgage unit of Lloyds Banking Group Plc (LLOY) said in a statement in London today. The average value of a home last month was 162,657 pounds ($264,431) and the lender sees prices falling 2 percent this year.
The U.K. economy shrank 0.6 percent in the fourth quarter, raising concerns among consumers about the sustainability of the recovery. Household confidence stayed close to the lowest since March 2009 last month. At the same time, banks are curbing lending, with mortgage approvals remaining at half the level seen at the peak of the housing boom in 2007.
“Uncertainty over the economic outlook is likely to weigh down on housing demand,” Martin Ellis, a Halifax economist, said in the statement. Still, “fewer properties have been coming onto the market. This trend, if sustained, should improve the balance between demand and supply and help to prevent a more significant fall in house prices.”
In the three months through February, prices fell 2.8 percent compared with the same period a year earlier, according to the Halifax index. That’s the biggest year-on-year decline in 16 months.
The pound fell 0.2 percent against the dollar and traded at $1.6241 as of 9:49 a.m. in London.
Recent U.K. house-price data has been mixed. While Hometrack Ltd. said this week that values fell 0.2 percent in February, an eighth consecutive decline, a separate report from Nationwide Building Society showed that prices increased 0.3 percent last month.
Bank of England Governor Mervyn King said this week that the U.K. housing market faces a greater threat from developments in the global economy than from domestic factors. In the neighbouring euro area, leaders are trying to find a solution to the region’s sovereign-debt crisis, while turmoil in Libya has pushed up oil prices to $100 a barrel, squeezing households.
Policy makers left the benchmark interest rate unchanged at a record low of 0.5 percent last month and kept their emergency bond purchase plan at 200 billion pounds. Three of the bank’s officials voted to increase the key rate to cool inflation that’s accelerated to twice its target.
Credit Agricole SA economists revised their U.K. rate forecast today and now see borrowing costs increasing in May rather than November.
While the bank will increase the rate to 1.25 percent this year from 0.5 percent, the “fragile consumer situation is likely to prevent the BOE from raising rates too sharply,” said Slavena Nazarova, an economist at Credit Agricole in Paris.
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