U.K. Slumps Most Since 1989 as Home Sales Decline

By Brian Swint

Jan. 13 (Bloomberg) -- The British economy slumped the most in at least two decades during the fourth quarter and home sales dropped to the lowest since the measure began in 1978 as the recession deepened, reports by lobby groups showed.

The British Chambers of Commerce’s survey of almost 6,000 companies showed the weakest results since it started in 1989, the London-based group said today. The average number of home sales per surveyor slipped and retail sales had the worst December in 14 years, reports by the Royal Institution of Chartered Surveyors and British Retail Consortium showed.

The Bank of England reduced the benchmark interest rate to 1.5 percent last week, the lowest in the bank’s history. Prime Minister Gordon Brown yesterday promised 500 million pounds ($745 million) to encourage hiring and pledged to help thaw lending as Britain faces its first recession since 1991.

“This recession is worse than in the 1990s,” David Frost, managing director of the BCC, told journalists at a briefing yesterday. “The situation is dire, and the Monetary Policy Committee is running out of bullets.”

The central bank said last week that further measures will be needed to return the economy to growth as interest rates approach zero. That may include purchasing bonds or other assets after the U.S. Federal Reserve this month started buying up securities backed by mortgages.

Fathom Financial Consulting suggested last week that the government should start buying homes in danger of repossession. Property values dropped 15.9 percent last year, the most since at least 1991, Nationwide Building Society said Jan. 6.

Property Slump

The average number of home sales per surveyor slipped to 10.1, the lowest in at least three decades, from 10.6 in the quarter through November, RICS said.

The RICS report still suggested that the property bust may have started to bottom out. The index for house prices, which is the percentage difference between the surveyors reporting higher prices and those reporting price declines, rose to minus 73 last month. That’s the highest since February.

A separate report by the Department for Communities and Local Government today showed that house prices fell an annual 8.6 percent in November, with values declining in all regions of the country. They slipped 1.9 percent from October to an average of 199,732 pounds.

Retail sales fell 3.3 percent from a year ago last month, the worst December number in the past 14 years, led by clothing and furniture, according to the BRC. The group represents 80 percent of U.K. retailers.

‘Truly Dreadful’

“These are truly dreadful numbers,” Stephen Robertson, director general of the BRC, said in a statement. “Retailers had a torrid December despite a blizzard of promotions and deals, which would have hit margins.”

The economy shrank 1.5 percent in the fourth quarter, the most since 1980, the National Institute for Economic and Social Research said Jan. 10. The statistics office reported a 0.6 percent contraction in the third quarter.

“We hope that the speed of the decline is matched by the speed of the recovery,” BCC’s Frost said. The group, which represents 100,000 companies, said its index of manufacturing sales at home fell to minus 38 from minus 13. The service index fell to minus 31 from minus seven.

The U.K. trade deficit unexpectedly widened to a record in November as the global slump weakened demand for British products abroad, the statistics office said today. The goods- trade gap was 8.3 billion pounds, compared with 7.6 billion pounds in October.

With the largest industrial economies in recession, British exports are getting little help from the pound’s 24 percent decline against the euro last year and a loss of 28 percent against the dollar.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net