Bank to hold rates despite house price decline
Monday, 3 October 2005
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House prices fell for the 15th consecutive month in September, the property website Hometrack said today as the Bank of England prepared for its latest interest rate decision this week.
The price of the average home dropped by 0.1 per cent from August, taking the typical value to £160,900, down from a peak of £167,700 in June 2004 and 3.7 per cent lower than a year ago. "We are still not in recovery mode in terms of house prices, as supply continues to outstrip demand," said John Wriglesworth, Hometrack's housing economist. "With buyers still obtaining an average of 7 per cent discount off asking price, vendors have been slow to set prices at realistic and affordable levels."
The latest sign of weak but stable conditions in the housing market is unlikely to prompt the Bank of England to take any action on interest rates this week.
All 50 economists polled by Reuters said the monetary policy committee would leave the base rate on hold at 4.5 per cent. However, there was a fine balance between those who saw a cut in November and those who predicted a move in February, while only seven said the next move would be a rise.
Figures on Thursday showed a large jump in mortgage approvals. Analysts said it could feed through to 10 per cent annual house price inflation in the coming months.
Philip Shaw, chief UK economist at Investec, said the Bank would probably cut rates early next year. "By then it will be confident enough to conclude that inflation is not a medium-term threat, that consumption trends remain lacklustre and that the economy is on course to grow below trend for a further year or so."
But David Hillier, chief UK economist at Barclays Capital, said: "The number of reasons for raising the repo rate will build steadily. And by May next year, these will be compelling enough for the committee to raise the repo rate by 25 basis points."
Hometrack's report showed that despite the number of buyers registering with estate agents remaining static this month, there had been a continued increase in the number of properties coming on to the market. The resulting oversupply meant that prices would inevitably fall again in the coming months, Hometrack said.
Only four counties saw price rises this month, 21 remained static and 32 saw prices fall. The largest price fall was in East Sussex (0.7 per cent), Northamptonshire and Merseyside (both 0.6 per cent), and north London and Devon (0.5 per cent). Brighton suffered the largest fall for any city of 2 per cent, while Plymouth fell 1.9 per cent and Milton Keynes dropped 1.7 per cent.
