House prices falling, says Rics, but UK unemployment down

Unemployment in Britain fell to its lowest level in two years in August as wages grew strongly with Britain's economy continuing to show its resilience.

But the news from the housing market was more mixed, with figures suggesting a slowdown in most parts of Britain excluding London. Figures from the Office for National Statistics showed the number of people claiming benefits declined by 4,200 to 852,900, in August leaving the unemployment rate at 2.6 per cent, its lowest since April 2005.

The International Labour Organisation, which counts the number of people out of work and actively seeking employment, put the jobless total at 1.649 million, down 28,000 in the three months to July compared to the same period in 2006.

ONS figures also showed that wages rose more than expected, with average earnings increasing 3.5 per cent compared to an upwardly revised 3.4 per cent in the three months to June.

The figures promise to intensify the battle between public sector workers and the Prime Minister, Gordon Brown, because Government employees' wages grew at their weakest rate since May 1998. Mr Brown wants to keep rises linked to the Government's 2 per cent inflation target. But evidence that the Bank of England's interest rate rises are having an impact came from the Royal Institution of Chartered Surveyors which warned that house price growth turned negative in August for the first time since October 2005.

The Rics UK housing market survey showed that demand slowed sharply as interest rate rises hit affordability with the trend most prevalent in the West Midlands, North-west and East Anglia although London's soaring prices have yet to be affected by this or the credit market turmoil, remaining the region with the strongest growth in England.

The organisation also said new buyer enquiries declined for the ninth month in a row and at the fastest pace since August 2004, with potential buyers wary of acting as the effect of the Bank of England's interest rate rises filters through. Some 37 per cent more chartered surveyors reported a fall rather than a rise in enquiries against 27 per cent in May. Rics noted that new instructions to sell fell for the third month in a row, concluding that confidence in household finances remains strong with vendors under little pressure to sell.

Philip Shaw, at Investec, said: "We've seen a fairly consistent pattern of unemployment falling and that reflects the fact that UK economic growth has been robust. But labour market data tends to lag events in the economy. There were concerns about a housing market slowdown before the recent volatility in financial markets, and if anything the recent turmoil has exacerbated the uncertainties in the market."

Oliver Gilmartin, senior economist at Rics, warned that the possible slowdown in the housing market could shake consumer confidence: "What has been surprising has been the resilience of the housing market in the face of five interest rate rises. If this does feed through, the retailers are going to suffer in the run-up to Christmas and you are going to see a slowdown. But the Bank of England has been trying to slow the economy."