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House prices dive as inflation pressures rise

House prices dived again last month and are now substantially lower than a year ago, according to reports from two leading building societies.

The Halifax Building Society will report today that house prices fell for the fourth successive month. Gary Marsh, a Halifax spokesman, said: "We had thought the trend in prices was flat, but now it is clearly dipping." He said there were strong arguments for measures to stimulate the housing market.

Prices fell 0.4 per cent in June, to a level 1.9 per cent lower than a year earlier. This is the steepest annual rate of decline in the Halifax index since 1993.

Nationwide said yesterday that prices slipped 1.8 per cent in June and were now 0.3 per cent lower than a year ago. The number of transactions was about 10 per cent lower than last year. The society called for tax cuts and measures to help first time buyers. Business planning director Philip Williamson said: "There is little to suggest that the position will be reversed in the immediate future."

Separate figures on personal borrowing confirmed that the mortgage market was flat in May. New home loans totalled pounds 1.3bn, the same as in April.

However, another stalemate between the Chancellor, Kenneth Clarke, and Eddie George, Governor of the Bank of England, is likely at their monthly meeting tomorrow after the latest divergent economic signals.

There was another strong advance in consumer credit in May, while a new survey of manufacturing indicated a significant increase in inflationary pressure in industry last month.

Prices paid by purchasing managers in manufacturing firms increased to the second highest since the Chartered Institute of Purchasing and Supply began its survey four years ago. The renewed pressure will concern the Bank of England, but smoke signals from Threadneedle Street suggest Mr George accepts that the weak housing market weighs more heavily with the Chancellor.

"Will the Bank bother to go through another ritual humiliation? It makes more sense for them to accept a pause on base rates," said Adam Cole, UK economist at James Capel. Most City analysts do not expect a rise in interest rates from their current 6.75 per cent this week.

The latest survey of purchasing manufacturers said higher prices for both raw materials and manufactured inputs were common. The reason was tightness of supply as well as higher import prices due to the weakness of the pound. Supply problems were most pressing in the steel and electronics industries.

However, there were new signs of slowdown in manufacturing. Output and new orders edged ahead. But higher stock levels and flat employment took the overall activity index down a fraction. It remained above 50, indicating that manufacturing is still expanding, but at the slowest pace since December 1993.

New consumer credit jumped by pounds 584m in May, significantly more than expected. Some analysts suggested this was thanks to cheap finance deals. Butcredit card borrowing is now growing at a year-on-year rate of around 20 per cent.