* UK house prices up 0.4 pct m/m; up 2.0 pct y/y in Oct
* Monthly increase moderates after strong summer rally
* GfK consumer sentiment index highest since Jan. 2008
* John Lewis says weekly sales up 9.1 pct vs yr ago
(Adds analyst comment, detail)
By Fiona Shaikh and Christina Fincher
LONDON, Oct 30 (Reuters) - British house prices posted their
first annual gain since early 2008 and consumer confidence hit a
21-month high in October, according to two surveys on Friday
which suggest economic conditions are gradually improving.
Mortgage lender Nationwide said house prices rose 0.4
percent in October, leaving them 2.0 percent higher than a year
ago in their first annual rise since March 2008.
Separately, pollsters GfK NOP said their consumer confidence
index rose to -13, its highest since January 2008, reflecting an
improvement in Britons' perception of economic conditions over
the last year and of their personal finances going forward.
But analysts questioned how long the trend would last, given
the bleak outlook for jobs and wages. While surveys have pointed
to an upturn for several months, Britain was stuck in recession
in the third quarter, marking its longest downturn on record.
"Like most other commentators, we remain cautious about the
outlook for house prices, as much of the recent increase is
likely to reflect reduced supply," said Colin Ellis, economist
at Daiwa Securities.
Record low interest rates have prevented a flood of
distressed sales, squeezing off housing supply and buoying
prices. But prices could fall next year as rising unemployment
puts more household budgets under pressure, economists say.
The Bank of England has held rates at 0.5 percent since
March and pumped 175 billion pounds into the economy by buying
assets with newly-created money to try to kick-start growth.
Policymakers will decide next week whether to expand the
asset purchase programme. The central bank is not expected to
raise rates until the middle of 2010 at the earliest.
Still, the government said Friday's data reinforced its
expectation Britain would emerge from recession before year-end.
For a graphic comparing the Nationwide and Halifax house
series, click here:
here
FALSE DAWN?
House prices have risen 4.6 percent this year, according to
the Nationwide index, after falling almost 16 percent in 2008.
That left the average house price at 162,038 pounds, 13.1
percent below its peak in October 2007.
But October's 0.4 percent rise was well below the average
1.2 percent monthly gain of the last five months.
"A moderation in the rate of house price inflation was to be
expected, as the very strong monthly increases seen over the
summer months were unlikely to be sustainable," said Nationwide
chief economist Martin Gahbauer.
Still, the strength of the housing market appears to have
helped bolster consumer's appetite to spend, with department
store chain John Lewis -- a retail bellwether -- announcing a
sixth consecutive rise in weekly sales on Friday.
And the GfK survey said Britons' propensity to splash out on
a major purchase was its highest since November 2007.
John Lewis said sales in the last week were 9.1 percent up
compared with a year ago, helped by strong demand for homewares.
But the figures were flattered by weak results a year ago
and analysts warned the latest sentiment and house price
improvments may not mean higher spending going forward.
Moreover, a temporary cut in value-added tax to 15 percent
from 17.5 percent may be boosting demand.
"Even though low mortgage payments, reduced utility bills
and easing inflation are boosting the purchasing power of a good
many people, the fact is that consumers continue to face serious
obstacles that are likely to limit spending for some time to
come and, hence, the upside for growth," said Howard Archer,
economist at IHS Global Insight.
"These notably include high and rising unemployment, low
earnings growth and heightened debt levels."
(Additional reporting by David Milliken; Editing by Victoria
Main)
