House price growth slowed to a two-and-a-half-year low during August as the cost of property inched ahead by just 0.1 per cent, economists said on Wednesday, signalling that the Bank of England?s interest rates rises have taken some of the heat out of the market.
Nationwide, Britain?s largest building society, reported that the rise was well down on the jump of 2.1 per cent the previous month.
The stalling in price growth during August helped moderate annual house price inflation to 18.9 per cent, down from 20.3 per cent for the year to the end of July.
Nationwide reported that the average house price has risen by 18.9 per cent, to ?153,743, over the past year. But the figure is down from July?s average house price of ?154,299.
?The sequence of rate hikes will have had an important impact on buyer sentiment and people?s willingness to stretch themselves,? said Alex Bannister, Nationwide?s group economist.
A combination of muted wage growth, further interest rate rises and lower price expectations from homeowners should slow the market over the rest of the year, he said.
Over the past three months prices have risen by an average of 1 per cent a month, compared with 1.7 per cent a month during the previous three months, suggesting price growth has moderated rather than slumped, it added.
?Whilst this will to some extent reflect the usual summer lull, underlying actively levels have clearly slowed. In addition, asking prices appear to have fallen sharply over recent weeks,? said Mr Bannister. ?While we don?t expect agreed prices to decline, the trend in price growth is expected to remain on a weaker path for the rest of the year.?
Lenders and the Bank of England had been predicting house price inflation would slow dramatically after last year?s 25 per cent gains but it is only now that this is starting to materialise.
Property website Rightmove said on Tuesday asking prices in England and Wales had fallen by an average of ?1,217 during the two weeks to August 28 and the Bank of England released data showing mortgage lending had recorded its steepest monthly fall since 1990.
The Bank is expected to continue increasing interest rates gradually which have risen five times to 4.75 per cent since November.
Meanwhile, manufacturing growth dipped noticeably in August as did the new orders and output balances. This was in direct contrast to the improvement in sentiment reported by the CBI manufacturing survey.
The Chartered Institute of Purchasing and Supply/Reuters purchasing managers? index fell from 56.0 to 53.1, while output balance plunged from 58.8 to 53.1, the sharpest monthly fall for six years. Export orders also dipped substantially signalling that business conditions deteriorated during August.
But Martin McMahon, of Lombard Street Research, suggested this downbeat conclusion could be just a temporary fall.
?Measures of sentiment can be volatile, jumping around and often detaching from reality. Plunging August numbers may be an over-reaction to recent weak economic news or they maybe a correction to a recent bout of survey over-optimism,? he said.
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