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U.K. house prices rose at the slowest pace in more than a decade in March and consumer confidence was the lowest since 1993, adding to evidence the economy is on course for its weakest performance since the end of the last recession.

Home values climbed 1.1 percent to 179,110 pounds ($359,295) from a year earlier, compared with an increase of 2.7 percent in February, Britain's fourth-biggest mortgage lender said today. That's the slowest pace since March 1996. An index of optimism among consumers declined 2 points from February to minus 19, the GfK NOP Ltd. market researcher said.

Britain's housing market may be heading for its first year of declines since 1993 as a jump in credit costs prompts lenders to scale back mortgage offers, making it more expensive to buy homes. Lehman Brothers Holdings Inc. said yesterday house prices will drop 8 percent by the end of 2009 and there's a 35 percent chance of a recession in that period.

“A clear change in sentiment since the late summer has led to the sharp slowing in house-price growth,'' Fionnuala Earley, chief economist at Nationwide, said in a statement. “Confidence is a very important factor in the housing market, and much of this confidence is determined by expectations of the future path of house prices.''

Consumers expect prices to fall 3 percent in the next six months, Nationwide said, citing a survey. GfK NOP said consumer confidence fell on concern a recession in the U.S. will spread to Britain. From last month, house prices fell 0.6 percent, the fifth decline in a row, Nationwide said.

Surprise

“I would be surprised if, in a few years time, house prices are markedly above where they are now,'' Bank of England Governor Mervyn King told lawmakers March 26.

U.K. economic growth will almost halve to 1.6 percent in 2008, the weakest since 1992, the year after Britain had its last recession, the average forecast of 22 economists surveyed by the Treasury this month showed instant cash advance cash til payday loan. A recession is typically defined as two consecutive quarters of shrinking output.

The economy expanded 2.8 percent in the fourth quarter from a year earlier, slower than a previously estimated 2.9 percent, as consumer spending growth was revised lower and government expenditure fell, the Office for National Statistics said in London today. The economy grew 0.6 percent on the quarter.

Struggling

The central bank is struggling to ease tensions in credit markets, which seized up after losses from the U.S. subprime mortgage market made financial institutions more reluctant to lend to each other. While the Bank of England has cut its benchmark rate twice since December, banks are refusing to pass that increase on to customers as they try to cope with higher funding costs.

Nationwide said yesterday it's withdrawing some home loans and raising rates on others. The cost of “tracker'' mortgages, which are linked to the benchmark rate, will increase by 0.57 of a percentage point for two-year loans, it said.

“The strain in the financial system is beginning to affect both households and firms,'' Michael Hume, Alan Castle and Peter Newland, economists at Lehman, said in a report.

Former Bank of England rate-setter DeAnne Julius said yesterday policy makers are falling “behind the curve'' and need to take more aggressive action to shore up the economy. She urged King and his colleagues to cut the benchmark by half a point to 4.75 percent at their next meeting on April 10.

Still, Nationwide argued that falling house prices may help restore balance to a market where prices have tripled in the past decade, shutting out many first-time buyers.

“A moderate fall in prices at this stage should not be unwelcome and should help to ensure greater stability in the market going forward,'' said Earley.

Source

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