May 13, 2008 / 8:29 AM / 12 years ago

UPDATE 1-UK house price falls most widespread since 1978

(Adds detail, BRC, comment)

By Matt Falloon

LONDON, May 13 (Reuters) - House prices suffered their most widespread decline across Britain for 30 years and retail sales fell for a second consecutive month in April, surveys showed on Tuesday, in a sign the economic slowdown is worsening.

The weak figures are likely to worry both Bank of England policymakers and out-of-favour Prime Minister Gordon Brown as the economy loses momentum but inflation intensifies as the impact of the global credit crunch deepens.

Manufacturers ramped up prices at the sharpest pace in at least 22 years last month, battling the fastest rise in costs on record, and economists expect headline consumer price inflation to remain well above the BoE’s 2 percent target for some time.

Consumer price inflation data is due at 0830 GMT.

“If you thought housing was weak in March ... it pales in comparison to the latest survey,” said George Buckley, an economist at Deutsche Bank who expects house prices to fall about 10 percent this year.

The Royal Institution of Chartered Surveyors said its house price balance fell to -95.1 in the three months to April from -79.4 in March — the weakest since the series began in January 1978 and well below forecasts for a reading of -80.0.

The balance fell in every region compared with March.

BoE arch-dove policymaker David Blanchflower warned last month that house prices could slump by almost a third unless aggressive remedial action was taken.

He also warned a recession could be on the way — an outcome which would most likely consign the ruling Labour party to defeat in the next parliamentary election due by May 2010.

But most of the Monetary Policy Committee are more sanguine and argue a slowdown is needed to keep a lid on inflation.

SLOWDOWN

Two British housebuilders warned on Tuesday their performance had been hit by a sharp downturn in the housing market and retail sales values fell for a second straight month in April, according to the British Retail Consortium.

That was the first time sales have fallen in consecutive months since 2005 and suggests tighter credit and rising household bills are forcing consumers to tighten their belts.

The British Retail Consortium said the value of like-for-like retail sales fell by an annual 1.5 percent last month.

Total sales, which include new floor-space, rose by 1.0 percent, the weakest annual rise in three years.

“The very weak April BRC survey reinforces concern that the economic downturn may be deepening and widening, and intensifies pressure on the Bank of England to relax monetary policy further,” said Howard Archer, an economist at Global Insight.

“However, latest inflation data are very worrying, so it is far from certain whether or not the Bank of England will be willing to trim interest rates from 5 percent to 4.75 percent as soon as June.”

Despite strong inflationary pressures, the central bank is under growing pressure to take more action to shore up the economy after three rate cuts since December.

Most economists see a good chance of a cut next month and the BoE has also devised a mortgage swap plan for banks to exchange hard-to-shift mortgage assets for easily tradable government debt to try to ease the lending squeeze.

However, banks have actually been toughening up lending terms as they have become less inclined to take on risk.

Average rates for a new two-year 95 percent loan-to-value fixed mortgage rose 34 basis points to 6.94 percent in April, BoE figures showed this week — the highest in eight years. (Editing by Stephen Nisbet)

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