Outlook for market depends on events in euro area, it says

(LONDON) UK house prices rose for the first time in three months in January, according to Halifax, which said the outlook for the property market will depend on developments in the euro area.

Uncertain future: While property prices in the UK have benefited from a shortage of homes for sale and record-low interest rates, risks to the economy from the sovereign debt crisis in Europe are weighing on the outlook

Prices increased O.6 per cent from December to an average £160,907 (S$316,075), the mortgage unit of Lloyds Banking Group plc said in a statement in London yesterday. From a year earlier, values were 1.7 per cent lower.

While property prices have benefited from a shortage of homes for sale and record-low interest rates, risks to the economy from the sovereign debt crisis in Europe are weighing on the outlook. The Bank of England (BOE) will probably increase its bond-purchase programme by £50 billion this week, according to economists in a Bloomberg News survey.

‘Prospects for house prices over the coming months will, to a large extent, depend on events in the eurozone and the repercussions of developments there for the UK,’ Halifax economist Martin Ellis said in the statement. ‘If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012.’

In the three months through January, values were 0.9 per cent lower compared with the previous quarter, Halifax said. From a year earlier, prices in the three-month period were down 1.8 per cent.

Surveys last week pointed to strength in the UK economy, with indexes of service and manufacturing output showing expansion in January. Consumer confidence rose to the highest since June last month as inflation slowed to 4.2 per cent, GfK NOP Ltd said.

Still, the National Institute for Economic and Social Research said on Feb 3 the economy may shrink 0.2 per cent in the first three months of 2012 after contracting in the fourth quarter. Policy maker Adam Posen said a day earlier ‘there’s a case’ for the BOE to increase its bond-purchase target by £75 billion.

The BOE will probably raise its bond-purchase plan by £50 billion, according to 34 of 50 economists in a Bloomberg News survey. Fifteen forecast a £75 billion increase and one predicted no change. The central bank will also keep its benchmark interest rate at a record low of 0.5 per cent, according to all 56 economists in a separate poll. The bank will announce the decision at noon on Feb 9. — Bloomberg

Source: Business Times 7 Feb 2012