Big-spending Britons drive economy, but housing picture mixed

LONDON Fri Aug 29, 2014 11:28am BST

Customers shop at a Primark store on Oxford Street in London June 20, 2014.  REUTERS/Luke MacGregor

Customers shop at a Primark store on Oxford Street in London June 20, 2014.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Big-spending Britons powered the economy in August as they became more confident about the recovery and their finances, though mixed house price data suggested the outlook for the property market was less clear-cut.

Consumer confidence figures beat expectations, rising in August to match a nine-year high hit in June - serving up a reminder of Britain's reliance on shoppers to drive its strong economic upturn.

According to mortgage lender Nationwide, house prices rose 0.8 percent on the month in August, far outstripping forecasts for a 0.1 percent increase and pushing the annual rate of growth to 11.0 percent.

But a separate survey from data company Hometrack showed prices in England and Wales grew just 0.1 percent for a second successive month in August, with London lagging behind.

Robert Gardner, Nationwide's chief economist, said the outlook for the housing market - described by Bank of England Governor Mark Carney as the No.1 domestic risk to Britain's economy - was highly uncertain.

But overall consumer demand was expected to have stayed strong with Fabrice Montagne, economist at Barclays, saying the confidence data pointed to improved retail sales figures for August.

"This month's consumer confidence print seems pretty solid, showing that the expected slowdown in activity will happen only gradually in (the second half of 2014), hence providing support for our November (interest) rate hike call," he said.

BoE policymakers broke ranks over interest rates for the first time in three years this month, although the central bank dented expectations of a first interest rate hike this year by slashing forecasts for wage growth.

A Reuters poll of economists showed the BoE will raise interest rates from a record low of 0.5 percent early next year.

CONSUMER CLOUT

Polling company GfK said its monthly consumer confidence index rose to +1 in August from -2 in July, beating forecasts for a smaller increase to -1 in a Reuters poll.

GfK's major purchases index rose to its highest level since August 2007, around the start of the financial crisis, underlining how consumer spending will remain a staple of Britain's swift economic recovery,

Nick Moon, managing director of social research at GfK, said it looked like consumer confidence might be entering a new period of stability.

"There is no guarantee how long this stable position will last - a rush of good or bad economic news could set off a marked rise or fall, but things could stay like this for a while," he said, pointing to previous periods of stability.

Signs from recent surveys that the housing market - another important source of growth - might be moderating were contradicted by Nationwide, which reported house prices rose 11 percent in the year to August, up from 10.6 percent in the year to July.

Its chief economist Gardner noted that mortgage approvals fell by almost 20 percent between January and May.

"However, there was a modest rebound in June and it is unclear how much of the slowdown was due to the introduction of Mortgage Market Review rather than an underlying loss of momentum," he said, referring to tighter affordability checks introduced in April.

The more downbeat Hometrack survey showed only 11 percent of London post codes registered rising house prices in August, compared with 87 percent in February.

Earlier this month, a report from the Royal Institute of Chartered Surveyors suggested the housing market was starting to cool.

(Reporting by Andy Bruce; Editing by Susan Fenton and John Stonestreet)

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