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Little movement in UK house prices

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said:

“UK house prices increased by 0.6% in October, more than offsetting the 0.4% decline recorded the previous month. Monthly price changes have failed to establish a strong trend in either direction over the past six months, with three months of increases and three months of price declines since May 2012.

“The annual pace of change continues to display a picture of relative stability, with house prices down just 0.9% compared to October 2011. This maintains the pattern that has been evident since late 2010, with annual price growth remaining in a narrow band between +1.5% and -1.5% on all but two occasions over the past two years.

“After contracting for three quarters in a row, the UK emerged from recession in style, with the economy growing by 1% in the three months to September, almost twice as much as most analysts had expected. While this is clearly good news, it is important to recognise that a number of one-off factors such as the Olympics, provided a significant boost to activity in Q3.

“Indeed, UK economic output is still slightly below the level prevailing twelve months ago and more than three percentage points below its 2008 level. Therefore, while the data on economic growth suggests that the UK economy has not been performing quite as poorly as feared, there is little doubt that it remains extremely fragile.

“With households and the public sector focused on repairing their finances rather than spending, the economic recovery is
likely to remain fairly sluggish, especially since headwinds look set to intensify in the quarters ahead. In particular, clouds are gathering over the global outlook. Eurozone business surveys point to a further slowdown in our key trading partners on the continent, while the US economy is also struggling to gain momentum. This threatens to hold back exports at a time when the UK is looking to international trade to drive its economy forward.

“This in turn suggests that the situation is likely to remain challenging in the housing market. Although the UK economy has been adding jobs in recent quarters, even in the midst of recession, conditions remain very difficult for households.

“Wage growth is still not keeping up with the cost of living and unemployment is still well above normal levels. This helps to explain why housing market activity has remained subdued, with the number of mortgage approvals still running at little more than half their long-run average.

“Policy measures such as the Bank of England’s Funding for Lending Scheme, which is helping to keep down mortgage
rates, should provide support for mortgage lending. Nevertheless, housing market conditions are likely to remain fairly subdued until there is a sustained improvement in the wider economic environment.”

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