British home prices will stagnate, report warns

LONDON— British house prices fell in September and will at best stagnate over the next year as a weak labour market undermines confidence, Nationwide Building Society said Tuesday. The average cost of a home dropped 0.4 per cent from August, the Swindon, England-based lender said in a statement. From a year earlier, values fell 1.4 per cent to an average £163,964 ($260,768). Separately, construction output fell for a second month in September, the first back-to-back contraction in almost three years.

The data add to evidence of an uneven recovery after reports this week showed lending fell in August and manufacturing shrank in September. A report Wednesday will show growth in services probably slowed last month and the Bank of England is seen maintaining its bond-purchase plan a day later as policy-makers assess the outlook for the British economy and the euro-area debt crisis.

“Given the fragile nature of the economy, the huge squeeze on real incomes and offsetting impact of ultralow interest rates, this gradual downward drift in house prices makes sense,” Ed Stansfield, an economist at Capital Economics in London, said in a research note. “Boosting confidence will take a much stronger growth in the economy and real incomes, both of which seem some way off.”

Bank of England markets director Paul Fisher said last week that third-quarter economic growth will be “very strong.” Still, that will partly reflect a rebound from the impact of an extra public holiday on gross domestic product in the second quarter. The British Chambers of Commerce said Tuesday that “U.K. economic performance remains weak and inadequate.”