Challenging times ahead as house prices stagnate and car sales fall

The economic challenges facing Labour as it began its third term in power last night were thrown into sharp relief by figures showing stagnation in house prices, a slump in car sales and a record surge in personal insolvencies.

The economic challenges facing Labour as it began its third term in power last night were thrown into sharp relief by figures showing stagnation in house prices, a slump in car sales and a record surge in personal insolvencies.

The raft of poor data added to mounting evidence that consumers have reined in their spending plans, putting the Treasury's economic forecast in doubt and making a rise in interest rates next week virtually unthinkable. The pound suffered its biggest drop against the euro for two months as traders reacted to the weak data and Tony Blair's drastically reduced parliamentary majority.

"The era of seemingly effortless success in economic management appears to be drawing to a close," said Stephen Lewis, chief economist at Monument Securities.

Halifax, the UK's largest mortgage lender, said house prices failed to rise in April, leaving the annual rate of growth at a four-year low. The price of the average home was unchanged at £163,615, after a 0.5 per cent rise in March. "There has been no movement in prices since the start of the year," said Martin Ellis, its chief economist. It left the annual rate of price inflation at 7.8 per cent, its weakest since June 2001 and below the long-run average of 8 per cent. A year ago it was just over 19 per cent.

Separate figures from the motor industry showed that new car registrations in April were 4.0 per cent lower than a year ago.

The main driver was a slump in sales of Rover models to just 739 vehicles - about a tenth of its April 2004 total of 7,259 - in the wake of the collapse of the last UK-owned car maker.

The Society of Motor Manufacturers and Traders (SMMT) said new car sales slipped 4 per cent to 179,457, taking total sales for the year to 880,962 - 6.6 per cent down on the January-April figure last year.

Christopher Macgowan, the SMMT chief executive, said: "April's dip has largely been dominated by MG Rover but it seems the crisis has not had a significant effect on consumer confidence across the wider industry."

Reg Vardy, the car dealer, said: "Sales across the market in the peak month of March [did] not reach the record levels of last year."