Britain's recovery strengthens, house prices rise

LONDON Tue Jun 11, 2013 2:31pm BST

A brass door knocker is pictured on a blue door in London August 30, 2011. REUTERS/Luke MacGregor

A brass door knocker is pictured on a blue door in London August 30, 2011.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - British house prices are rising at their fastest pace in three years and the country's lagging industrial sector is now contributing to the economy's recovery, data showed on Tuesday.

After a surprisingly strong services survey last week, the figures suggest incoming Bank of England chief Mark Carney will inherit an economy already on the way to what he has termed "escape velocity".

Britain's economy grew 0.3 percent in the first quarter of this year and looks on track to achieve possibly double that between April and June. Still some way behind the United States, Britain seems to be pulling away from its euro zone neighbours.

With the recovery gaining momentum, it may be hard for Carney - who has a reputation for bold thinking on monetary policy - to argue for more help for the economy.

"It's a strong picture and is will make it very hard for Carney and the other eight members of the Monetary Policy Committee to justify more stimulus," said Brian Hilliard, UK economist at Societe Generale.

A survey from the Royal Institution of Chartered Surveyors showed British house prices rose at their fastest pace last month since June 2010, while new buyer enquiries jumped to levels last seen in 2009.

The government's Help to Buy scheme, announced in March, and its Funding for Lending scheme, launched with the Bank of England last summer, have both allowed buyers with small deposits get on the property ladder.

A buoyant housing market typically supports consumer spending but concerns are growing that house prices are getting frothy, particularly in London and the South-East.

RICS said its members each reported 17.9 homes sold on average in the three months ending in May, the highest reading since January 2010.

"More people decided to get out there and view property, and more transactions went through than in quite some time," said Peter Bolton King, RICS global residential director.

INDUSTRY ADDS TO GDP

Separate figures from the Office for National Statistics showed industrial output, which makes up around 16 percent of Britain's economy, rose in April for a third consecutive month.

While the rise of 0.1 percent was not impressive in itself it beat expectations. Economists had expected a flat reading after gains of 0.7 and 0.9 percent in the previous two months. On an annual basis, industrial output was down 0.6 percent, the smallest annual drop since June 2011.

Industrial output, which weighed on growth throughout 2012, looks set to contribute at least 0.1 percentage points to GDP in the second quarter, economists said. Still, the services sector looks set to remain the biggest driver of the recovery.

The Purchasing Managers' Index for services last week jumped two full points to 54.9 in May, underpinned by the sharpest rate of new business growth in more than three years.

The run of robust data has already pushed gilt yields higher. Ten-year yields have risen 60 basis points since early May as investors have pared back expectations of more quantitative easing.

A new 10-year gilt auction on Tuesday drew lacklustre demand, with a recovering economy and a fading chance of more gilt purchases from the Bank of England dimming gilts' appeal.

Fewer than half of economists polled by Reuters at the end of May expect the Bank of England to embark on more quantitative easing before the end of the year, in contrast to previous months' polls which have shown a majority expecting more stimulus.

(Additional reporting by William Schomberg and Olesya Dmitracova; editing by Ron Askew)

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