August 9, 2010 / 11:04 PM / 10 years ago

House prices drop and retail sales growth slows

LONDON (Reuters) - House prices fell last month and retail sales growth slowed abruptly according to two surveys on Tuesday that will raise concern the recovery is losing momentum.

The Royal Institution of Chartered Surveyors’ house price balance fell to -8 in the three months to July — the first negative reading in a year — from a downwardly revised +8 in the three months to June.

The new buyer enquiries balance fell for the second straight month while property coming on the market increased at its fastest pace since May 2007, leaving surveyors braced for further weakness in the coming months.

A survey from the British Retail Consortium, meanwhile, showed the value of sales last month was just 0.5 percent higher than a year ago on a like-for-like basis, less than half the 1.2 percent growth recorded in June.

While part of that weakness may be a natural correction after June’s World Cup-related strength, the compilers of the survey also pointed the finger at the weakening housing market and harsh government spending cuts to come.

“The overriding factor is consumer confidence — it’s fallen recently,” said Stephen Robertson, Director General of the BRC.

“Talk of public spending cuts is unsettling customers and they are concentrating on essentials.”

Britain’s Conservative-led coalition government, which came to power in May, aims to slash spending in some areas by a quarter, potentially putting thousands of public sector jobs at risk. With bank lending still restricted, many doubt whether the private sector will be in a position to pick up the slack.

Britain’s economy grew an unexpectedly strong 1.1 percent from April to June but most economists think that will be the high water mark, with growth slowing for the remainder of the year.

The Bank of England will publish new growth and inflation forecasts on Wednesday and is expected to downgrade its GDP forecasts for both 2011 and 2012.

The Bank has kept UK interest rates at a record low of 0.5 percent since March 2009 and while one policymaker has been calling for a rise, most analysts expect no change in policy for many months to come.

Although inflation remains well above the 2 percent target, some analysts think the central bank may even feel compelled to re-start its quantitative easing scheme to prevent a relapse into recession.

Reporting by Christina Fincher and Fiona Shaikh

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