U.K. December House Prices Fall the Most Since at Least 1991

By Svenja O’Donnell and Jennifer Ryan

Jan. 6 (Bloomberg) -- U.K. house prices had the biggest drop since at least 1991 last year and consumer confidence slumped as banks rationed credit and homebuyers shunned the property market, Nationwide Building Society said.

The price of a home declined an annual 15.9 percent in December to 153,048 pounds ($223,235), slipping 2.5 percent from the previous month, the mortgage lender said in a statement today. Nationwide said “highly volatile” conditions make it difficult to give a forecast for house prices in 2009.

The Bank of England will probably cut the benchmark interest rate further this week after reducing it in December to 2 percent, the lowest since 1951, economists say. Prime Minister Gordon Brown also plans to unveil new measures to bolster the economy as it endures its first recession since 1991.

“We did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “Prices have further to fall before significant numbers of buyers will be willing to return to the market.”

On a quarterly basis, house prices fell 14.7 percent in the final three months of 2008 from a year earlier, Nationwide said. The biggest decline was in Northern Ireland, where home values dropped 34 percent.

U.K. mortgage approvals dropped to the lowest level since at least 1999 in November and banks plan to curtailed loans further across the economy, the Bank of England said on Jan. 2.

Consumer Confidence

Nationwide also released its monthly gauge of consumer confidence today, showing sentiment among shoppers fell to the weakest level since the report began in 2004. The index dropped four points to 47.

The economy contracted 0.6 percent in the third quarter and consumer spending dropped the most since 1995. Unemployment rose at the fastest pace since 1991 in November.

A survey of U.K. services from banks to airlines for December will probably show the biggest contraction since at least 1996, according to the median forecast of 21 economists in a Bloomberg News survey. The Chartered Institute of Purchasing and Supply will release the survey after 9:30 a.m. today.

The U.K. central bank will probably cut the benchmark interest rate by half a point to 1.5 percent on Jan. 8, according to the median forecast of 57 economists in a Bloomberg News survey.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net.