July 17, 2019 / 11:19 AM / a month ago

UPDATE 1-London house prices fall at fastest rate in a decade

    * London house prices down 4.4% y/y
    * UK house price growth slows to 1.2%
    * Brexit and high valuations weigh on capital 
    * Consumer price inflation hits BoE's 2% target again
    * Rare input price fall points to weak inflation pressure

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    By Andy Bruce and William Schomberg
    LONDON, July 17 (Reuters) - House prices in London fell at
the fastest pace in almost 10 years in May, according to
official data that also showed inflation hitting the Bank of
England's 2% target for a second month running in June.
    House prices in London - which have been hit by worries
about Brexit and its impact on the city's attractiveness as a
global finance centre - slid by 4.4% in annual terms, the Office
for National Statistics (ONS) said. 
    That marked the biggest fall since August 2009.
    Reflecting the weakness in the property market since the
Brexit referendum more than three years ago, house price growth
across the United Kingdom as a whole slowed to 1.2%, matching
February's six-year low.
    Some other surveys have suggested that the market might be
borrowing out and analysts said London's dip was not likely to
be followed by the rest of the country.
    "The downturn in London probably isn't a sign of an
impending slump elsewhere, but instead reflects the slowdown in
net migration, a glut of new-build flats and valuations
correcting from excessively stretched levels," said Samuel
Tombs, economist at consultancy Pantheon Macroeconomics.
    London house prices are now 6.4% below their July 2017 peak,
a disappointment to some homeowners but a much smaller fall than
the 17.8% peak-to-trough hit during the global financial crisis.
    Furthermore, the current downturn in the capital represents
only a small hit given that London house prices have almost
doubled since the financial crisis, leaving the city
unaffordable for many buyers.
    Zoopla, an online property portal, said it the breadth of
price falls across London's boroughs was narrowing and it
expected the price declines to moderate over 2019 and 2020.
    
    BANK OF ENGLAND UNDER NO PRESSURE ON INFLATION
    Separate data from the ONS published on Wednesday showed not
only stable consumer price inflation at 2.0%, but also weaker
pipeline price pressures faced by British factories.   
    "While the UK consumer price inflation backdrop appears
relatively benign, the fact that wage growth is holding up
suggests it's too early to be thinking about rate cuts," ING
economist James Smith said.
    "But the increasing uncertainty surrounding Brexit suggests
policy tightening is equally unlikely this year."
    Some investors think the BoE's next move might be to cut
rates as the prospect of an economically damaging no-deal Brexit
grows and U.S.-China trade tensions slow the global economy.
    On the other hand, households, whose spending drives
Britain's economy, are have been helped by wages rising at their
fastest pace in a decade, with unemployment at a 44-year low, as
well as by modest inflation.
    The ONS said producer input costs, which eventually feed
through into prices on the high street, fell 0.3% in annual
terms in June, the first decline in three years.
    The pound and British government bonds were little moved by
the data, which aside from weaker-than-expected factory input
cost readings were as expected in a Reuters poll of economists.

    
 (Editing by Angus MacSwan)
  
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