House price rise gathers pace

Economy: Low inflation, higher output and increased confidence lift hopes on both sides of the Atlantic

House prices are growing at their fastest rate since 1989, according to new figures from Halifax Building Society. Nationwide is expected to report a further increase in its house price index today.

The latest sign that the housing market is coming back to life was accompanied by other surveys showing higher output and orders in industry, lower inflation and the return of consumer confidence to late-1980s levels.

But against the kind of economic dream ticket on which the Government's hopes of re-election rest, the Labour Party attacked it for its long-term neglect of manufacturing industry. It published a report showing the number of jobs in manufacturing had fallen to below 4 million from 7 million in 1979.

A separate report from the Construction Industry Employers' Council predicted that more than 30,000 construction jobs will be lost this year, although it said the industry's output would start to grow again next year.

According to Halifax, house prices last month were 5.3 per cent higher than a year earlier, the fastest annual increase since the tail-end of the housing boom and up from 4 per cent in June.

The average cost of a property rose 0.5 per cent between June and July, following a 0.4 per cent dip between May and June. Nationwide is expected to report similar monthly increase. Halifax is sticking to its prediction that house prices will climb 5 per cent during 1996 as a whole.

The housing market recovery is going hand in hand with a revival of consumer confidence according to a survey published by consultancy Business Strategies. Consumers are more confident about the state of the economy than at any time since 1988, it reported.

However, Business Strategies director David Fell said a return to the boom conditions of the late 1980s was unlikely. "The consumer will be the mainstay of economic growth in the short term but we do not expect to see an explosion of demand."

Strengthening consumer demand helped manufacturing pick up for the second month running, according to the monthly survey of purchasing managers by the Chartered Institute of Purchasing and Supply. Higher output and a big jump in new orders raised the activity index for the second month running, while the survey pointed to a slight fall in the workforce.

Yet prices paid for materials by manufacturers fell to a new low, signalling further declines in inflation at the factory gate and ultimately on the high street. The prices paid on balance fell particularly sharply in the consumer sector.