August house prices rose sharply, says Nationwide |
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Thu, 31 Aug 2006 12:10
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LONDON - Despite a shock rise in interest rates, house prices in the UK showed a sharp rise in August, according to the latest report released by the Nationwide building society.
House prices in August increased 0.8 percent, the same level as in July taking the annual price rate growth to 6.6 percent. The average price of a house in the UK is now £167,721. Even quarterly house prices showed a gain of 1.4 percent as compared to the previous quarter.
This report is the first indication of the trend in the housing market since the Bank of England unexpectedly raised the base interest rates from 4.5 percent to 4.75 percent early this month.
"While the MPC is now clearly in hawkish mode, uncertainties about oil prices and the amount of slack in the economy mean that the inflation outlook is less definite and fewer rate rises are expected," said Fionnuala Earley, Nationwide's group economist. "Even though we expect rates to increase to 5% - 25 basis points above the peak of the last cycle - current economic conditions, especially in the labour market, are still supportive." She added that rate rises may not have a drastic impact on the housing market as happened in July 2004.
"Rate rises are likely to be only a catalyst to the slowing we had already expected, rather than fostering a repeat of the 2004 slowdown," said Earley. The property market will have an overall inflation of 5 percent for 2006, Nationwide forecast.
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