House prices fall for third month

By Matt Falloon

LONDON (Reuters) - House prices fell for a third consecutive month in January to post the lowest annual rate of inflation in more than two years, a survey shows.

The risk of a sharp correction in house prices has grown this year, raising expectations that the Bank of England may be forced into several interest rate cuts despite rising inflationary pressures.

The Nationwide building society said house prices fell 0.1 percent on the month in January, following a 0.4 percent decline in December. This month's reading was slightly stronger than analysts' forecasts of a 0.3 percent fall.

That took annual house price inflation down to 4.2 percent from 4.8 percent in December, the lowest rate since December 2005 and the average house price fell to 180,473 pounds from 182,080 pounds.

The Nationwide figure showed house prices were 0.3 percent down in the three months to January compared with the previous three months, falling from a 0.9 percent increase in the trend rate in December.

"Further falls in house prices seem more likely than not. We expect house prices to fall by five percent in 2008," said Brigid O'Leary, a property economist at Capital Economics. "A weakening economic outlook will only add to the problems."

The figures add to evidence of a cooling housing market and are likely to reinforce economists' forecasts that the Bank of England will cut interest rates next week from the current 5.5 percent.

Mortgage approvals data from the Bank of England on Wednesday came in weaker than expected to post their lowest reading since the current series began in 1999.