U.K. House Prices Unexpectedly Rose in June, Nationwide Says

By Brian Swint

June 30 (Bloomberg) -- U.K. house prices unexpectedly increased for a second month in June on Nationwide Building Society’s measure, adding to signs that the worst of the property slump is over.

The average cost of a home climbed 0.9 percent to 156,442 pounds ($259,000) after rising 1.3 percent in May, the mortgage lender said in a statement today. Economists predicted a 0.5 percent drop, according to the median of 16 forecasts in a Bloomberg News survey. From a year earlier, prices fell 9.3 percent, the smallest annual drop since July 2008.

Consumer confidence also rose this month in further evidence the economy is easing out of its worst slump in a generation. Bank of England Governor Mervyn King said last week that the road to recovery may be a “long, hard slog” as the lending squeeze chokes economic growth.

“The stabilization of house prices is a welcome surprise,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “However, there are still considerable headwinds facing the demand side and until we see a more robust recovery in house purchase activity, it is too early to be confident about a full-scale recovery of prices.”

GfK NOP’s consumer confidence rose to minus 25 from minus 27, the highest in more than a year. The measure on the economic outlook rose 8 points to minus 8, the report showed.

GDP Report

Signs of a pickup follow the steepest economic contraction since 1979. The statistics office will probably revise down its estimate for first-quarter gross domestic product to show a 2.1 percent drop, compared with a previous report of 1.9 percent, the median of 28 economists in a Bloomberg News survey shows. The report is due at 9:30 a.m. today in London.

Rising unemployment has crimped demand for houses. U.K. home-loan approvals climbed less than economists forecast in May and net mortgage lending increased 324 million pounds, the least since records began in 1993, the Bank of England said yesterday.

“Alongside the low level of mortgage approvals, however, there continues to be a relentless drop in the stock of property available for sale,” said Nationwide’s Gahbauer. “As a result, prices have been able to stabilize even in the face of very low demand. There are still many obstacles in the way of a genuine and sustainable price recovery.”

The Bank of England this month kept the benchmark interest rate at a record low of 0.5 percent and maintained the program to stoke economic growth by buying 125 billion pounds of bonds with newly created money. King said last week he feels “more uncertain now than ever” on the strength of future expansion and reiterated that the economy won’t return to growth on annual basis until the second half of 2010.

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