Rise in house prices tempered by slowdown in manufacturing

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House prices are rising at their fastest rate in 18 months, while manufacturing growth is slowing, according to figures yesterday that showed little sign of a rebalancing in the economy.

The average price of homes sold in November rose by 0.6 per cent to take the annual rate to 6.8 per cent, the Land Registry said. "The growth rate remains firmly positive," the Government agency said. "The November monthly growth rate is approximately twice the size of the average monthly growth in 2005."

However, it said the rise was weaker than the 1.3 and 0.9 per cent rises seen in September and October respectively.

The report, which is based on all sales of second-hand homes, highlighted a fall of 0.6 per cent in house prices in London. The annual rate has slowed from 9.1 per cent in September to 7.8 per cent in November.

"Although we would not read too much into it just yet, this slowdown could be a sign that confidence may be flagging," Ed Stansfield, the property economist at Capital Economics, said.

Most forecasters are predicting a slowdown in the housing market after last year's rise, although none is expecting a crash.

But even the weakest forecast, of 4 per cent by Halifax, is in line with the growth in average earnings. Lombard Street Research believes the rise could be as high as 15 per cent.

UK manufacturers ended the year on a downbeat note as a snapshot survey of the sector showed that activity growth slowed unexpectedly in December.

The survey by the Chartered Institute of Purchasing and Supply (Cips) eased to 51.9, its lowest reading in nine months and confounding analysts' expectations for 52.6, from 52.5 in November. A reading above 50 indicates expansion.

"The figures seem to dent hopes of a rebalancing of the UK economy," Phil Shaw, the chief UK economist at Investec, said. "It appears that the manufacturing sector is beginning to lose some momentum."

The Cips survey showed a slowdown in output and new orders, although manufacturers saw a fall in raw materials bills.

Roy Ayliffe, a director at Cips, said: "The manufacturing sector remained lacklustre as managers reported that output and new orders continued to ease. The sector looks set to finish 2006 on a subdued note."

Some analysts said this could deter the Bank of England from raising interest rates next month. "Further policy tightening is not a done deal," Ross Walker, at Royal Bank of Scotland, said.