House prices start to fall

FEARS THAT the economy is slipping into recession grew yesterday as industry reported a collapse in confidence, house prices fell for the first time in two years and a union said 250,000 jobs could be lost unless interest rates were cut.

House prices fell 0.5 per cent in August, the first drop in 20 months, the Nationwide Building Society said, blaming interests rates, which have risen six times since the election.

"It is now clear house price inflation peaked towards the end of 1997 and has been on a modest downward trend ever since."

The society said the biggest slowdown was in London and the South-east, although prices overall were still 9.2 per cent higher than a year ago.

The Confederation of British Industry said economic growth was "grinding to a halt". It blamed the strong pound and called for an early cut in interest rates. But even as it issued its warning, the pound was rising fast on the foreign exchanges. The CBI forecast the Bank of England would cut interest rates from 7.5 per cent to 7.25 per cent soon and that by the end of next year rates would be down to 6.25 per cent.

Its renewed call for action came as a CBI survey showed manufacturers were expecting output to plunge in months ahead. The survey result was the most depressed for five years, and exporters' order books are at their lowest for 15 years. The call for lower interest rates was echoed by Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union, who said 250,000 manufacturing jobs were at risk because of falling exports and slowing growth.