UK House Prices Drop Most Since 1990, Retail Index Plunges
August 28th, 2008Via: Bloomberg:
U.K. house prices declined at the fastest annual pace in almost two decades and an index of retail sales plunged to a 25-year low in August as Britain’s economy edged closer to a recession.
The average value of a home fell 10.5 percent to 164,654 pounds ($301,500), the biggest drop since the final quarter of 1990, Nationwide Building Society said today. A gauge of retail sales fell to minus 46 from minus 36 the previous month, the Confederation of British Industry said in a separate report. That’s the lowest since its survey began in July 1983.
Today’s reports indicate Britain is heading for its first recession since the early 1990s after stagnating in the second quarter as higher living costs hurt spending and the credit squeeze ripples through the economy. As the outlook worsens, economists at banks including Societe Generale SA and Bank of America Corp. now forecast the Bank of England will be forced to set aside inflation concerns and cut interest rates this year.
“The big issue is how long and how severe” the U.K.’s recession is going to be, said Jim O’Neill, head of global economic research at Goldman Sachs Group Inc. “We’re in it. It shouldn’t be news anymore.”
U.K. government bonds rose. The yield on the two-year gilt dropped 3 basis points to 4.46 percent at 12:30 p.m. in London.
House prices declined 1.9 percent from a month earlier, the 10th consecutive decline in values, Nationwide said. Meanwhile, retailers’ pessimism deepened to the lowest on record, with the quarterly index of stores’ business situation falling to minus 38 from minus 17 in May, today’s report showed. The CBI survey was conducted between July 29 and Aug. 13.
Brutal Recession
“The CBI figures look even worse that what we saw in the troughs of the last recession, and that was brutal,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London.
The U.K. had five straight quarters of contraction starting in the third quarter of 1990. Home values lost 13 percent of their value in three years and unemployment almost doubled, rising to 9.9 percent in April 1993. The jobless rate was 2.7 percent in July.
