UK: House prices fall at sharpest pace since 1993
House prices suffered their steepest annual fall in 15 years in April, stoking fears of a deep downturn, as figures showed more than 25,000 people succumbed to bad debt in the first three months of the year.
A pick up in the number of companies going bust will also add to growing concerns over the state of the economy and exacerbate the challenge facing Prime Minister Gordon Brown as Labor slumps to defeat in local government elections. Brown must now win back the confidence of voters before he has to call a national election by May 2010. The weak housing market figures from Britain’s biggest mortgage lender HBOS come after a Bank of England policymaker warned prices could fall by a third. They have already declined more than 5% from last August’s peak of an average £199,600. “This is a dark cloud that is getting ever darker for the economy,” said Alan Clarke, an economist at BNP Paribas.
House prices fell 1.3% on the month to an average £189,027 last month, HBOS said, the third monthly decline in a row and leaving prices 3.7% lower than April last year. That was the biggest yearly decline since June 1993, analysts said, when Britain was still in the throes of a protracted housing slump. “What is most concerning is that these house price falls have come with the economy only having registered a modest slowdown,” said Seema Shah, a Capital Economics property expert. “With the economy and labour market set to weaken further, our forecast for a 20% fall in house prices by end-2009 is firmly on track.”
BOE HELPS BANKS
Bank of England arch dove David Blanchflower said this week Britain’s economy may fall into a recession unless policymakers acted immediately to shore up growth. But most analysts expect the central bank to wait until June before trimming rates again, having already reduced them three times since December to 5%, given worries over inflation. However, the BoE has been trying to ease the credit crunch. Commercial banks will be able to hold more funds as reserves at the central bank from May 8 onwards, the BoE said on Friday, in a move which is expected to make it easier for banks to get hold of cash quickly if they need to and if markets dry up. The move came after the BoE announced a £50 billion swap plan last week to allow banks to exchange hard-to-shift mortgage-backed assets for risk-free government debt. It is hoped the scheme will ease the lending squeeze by freeing up banks’ balance sheets, restoring confidence on money markets and bringing down elevated interbank lending rates.
In the first three months of this year 25,264 people declared themselves insolvent in England and Wales. While that was 13.2% down from a year ago, analysts warned the outlook was grim. “The effects of the credit crunch are only just showing up in some of the hard data so it is premature to expect the data to show a tidal wave of insolvencies,” said BNP Paribas’ Clarke. “However, this will come and become an increasingly prominent issue along with (home) repossessions,” he said. Company liquidations were 2% higher on the quarter at 3,210, an annual increase of 4%.
British construction activity fell for the second month running and at its fastest rate since December 1998, according to the Chartered Institute of Purchasing and Supply. While the housing downturn is gathering pace, prices have nearly trebled in the last decade and analysts said record levels of employment suggest the market is not about to crash as it did in the early 1990s. (Reuters)
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.