Cooling house prices ease MPC dilemma

Halifax says value of average property rose just 0.2% last month, in striking contrast to Nationwide's findings

The housing boom may have come to an end, Halifax bank said yesterday as it reported that prices rose in August at their slowest rate for 10 months.

House prices rose just 0.2 per cent, the smallest increase since last October, after jumping 1.8 per cent in July.

That brought the annual increase down to 18.8 per cent from 20.8 per cent, which was the fastest rate since June 1989. The average property price is £111,968.

The survey came as the engineering industry called on the Bank of England to cut interest rates, saying that manufacturing had "stopped in its tracks".

Confirmation that the housing market is finally slowing would come as a huge relief for the Bank, which has repeatedly described annual house price inflation over more than 20 per cent as "unsustainable".

But economists in the City said that the Bank, which meets today and tomorrow to set rates, would want to see clear signs of a slowdown before acting.

Martin Ellis, an economist for the country's largest mortgage lender, said: "We think this could well be the start of the end of the boom, particularly in London and the South-east."

Mr Ellis said a key factor behind the slowdown was the fact that first-time buyers were being priced out of the market.

The average price paid by first-time buyers has fallen by 2.5 per cent over July and August. "Affordability is beginning to bite," he said. The number of properties for sale at its estate agency business had risen for the first time in more than seven months, alleviating the shortage of properties that have kept prices high.

He said he could not discount the possibility that prices could fall over coming months but insisted this would not mean the market had crashed. "You can see that happen even when the market is buoyant," he said.

The Halifax figures were a marked contrast to last week's report from Nationwide building society, which said prices accelerated to a fresh 13-year high of 23 per cent in August.

Mr Ellis said: "I think our figures fit in much better with other evidence from estate agents and builders that the market is not as strong as it was at the start of the year. We have noticed our index does lead the Nationwide."

The Royal Institution of Chartered Surveyors and two estate agents' websites – Hometrack and Rightmove – have all reported a slowdown.

But the gap between the Halifax and Nationwide will mean the picture will remain clouded for at least another month, analysts believe. Simon Rubinsohn, the chief UK economist at the City brokers Gerrards, said there was a risk the Halifax index would bounce back. "However, if this fails to materialise the prospect of a material deceleration in house price inflation will need to be taken more seriously," he said.

Meanwhile the Engineering Employers' Federation said output and orders had fallen for the sixth quarter in a row on the back of weaker global demand.

Its survey of 1,200 firms found a balance of 10 per cent said output was down in the third quarter, worse than the 4 per cent in the second quarter.

Stephen Radley, its chief economist, said: "Renewed weakness in the world economy and business confidence has stopped the recovery in manufacturing in its tracks.

"With overall growth slowing and inflation under control, the Bank of England has room to reduce interest rates."

There was further sign of weakness in the world economy yesterday from the US where the key ISM survey of manufacturing showed that a much hoped-for bounce failed to materialise in August.