British house prices jumped at their sharpest pace in five months in January and consumer confidence rose more than expected, in a sign the economy got off to a good start in the new year.
The Nationwide building society said house prices rose by 1.2 percent this month, more than twice the 0.5 percent gain seen in December and the biggest advance since August. Analysts had forecast a 0.3 percent rise on the month.
That took annual house price inflation to 8.6 percent from 5.9 percent last month, the highest since October 2007 and following double-digit declines in many months last year.
And GfK NOP's consumer confidence index rose 2 points to -17 this month to stand 20 points higher than the same month last year, with 3 out of 5 components higher than December.
That may provide some comfort to Prime Minister Gordon Brown whose Labour government is hoping for an economic recovery in time for an election expected in less than 100 days.
But so far opinion polls point to victory for the opposition Conservatives after 13 years of Labour rule. Figures released earlier this week, showing Britain only just scraped out of recession at the end of 2009, have cast doubt on the prospects of a significant turnaround before an expected May 6 election.
Still, the country's housing market, whose fortunes have often been closely tied with consumer confidence given a very high level of home ownership, appears to be returning to health after the ravages of the credit crunch.
"Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007," said Martin Gahbauer, Nationwide's chief economist.
Analysts are concerned that the housing market could yet suffer a setback given the fragile state of the economy.
"The key question now is what will happen during the rest of 2010," said Colin Ellis, economist at Daiwa Securities. "But if prices just hold steady, or even decline gently, that will still imply a smaller adjustment than many think is necessary."
OUTLOOK IMPROVING
Despite this week's data showing the economy grew just 0.1 percent in the last three months of 2009 after an 18-month long recession that wiped out 6 percent of output, consumers are somewhat more upbeat, the GfK survey showed.
It said respondents were feeling more confident about the economic situation over the next 12 months in January, with that measure rising four points to -2. The future personal finance index was up one point to +4.
The housing market has picked up again in recent months thanks to the Bank of England cutting interest rates to a record low of 0.5 percent and pumping nearly 200 billion pounds ($325.4 billion) of newly-created money into the economy by buying mostly government bonds.
Most analysts expect the central bank's asset-buying programme to halt in February, particularly given relatively hawkish comments by BoE policymaker Andrew Sentance earlier this week who said that inflation might become harder to control.
But few expect any change to interest rates for some time to come, given that the economy remains in a fragile state.
"Although it is clearly encouraging that economic activity is no longer falling, it remains a long way below the pre-recession level and is not yet growing convincingly," said Gahbauer.
