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London property slump drags back UK house price growth

The Guardian logo The Guardian 20/12/2018 Phillip Inman
a hand holding a flower: London property prices fell 1.7% in the year up until October 2018. © Bloomberg via Getty Images London property prices fell 1.7% in the year up until October 2018.

London house prices slipped in October, dragging the growth in average property prices to its lowest level since July 2013.

The slump in the capital, which began after the Brexit vote in 2016, and reached a fall of 1.7% for the year to October 2018, pulled down the average increase across the UK to 2.7%, down from 3% in September, according to official data.

A slowdown in growth across the south-east and the east of England also put the brakes on national price rises, leaving the average cost of a home in England at £248,000.

The decline in property inflation was mirrored on the high street after annual inflation figures showed the consumer prices index (CPI) for November had nudged lower to 2.3% from 2.4% in the previous month.

Discounted clothing, footwear, food and furniture accounted for much of the fall while the rising cost of transport and private education pushed up the index.

The Office for National Statistics said its preferred measure of inflation, which includes the cost of housing services and council tax, remained unchanged at 2.2%.

Analysts said slowing inflation and property prices, combined with the uncertainty about the government’s Brexit plans, meant the Bank of England would suppress its urge to raise interest rates at a meeting on Thursday and wait until at least the middle of next year.

Mike Jakeman, a senior economist at PwC, said: “Inflation returning towards the Bank of England’s 2% target is good news for workers, who are receiving the dual benefit of accelerating wages and slowing inflation, pushing up their income growth in real terms.

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“It also suggests that the Bank’s current monetary policy is suitable for now, with the central bank highly likely to leave interest rates unchanged until there is more clarity on the circumstances through which Brexit will be resolved. We continue to expect inflation to slow to the Bank’s 2% target in the coming months.”

Jeremy Thomson-Cook, chief economist at currency dealer World First, said: “In a normal world, we would be talking about interest rate increases but the spectre of Brexit and the continued uncertainty about our position come 29 March means that investors will only start to meaningfully price in interest rate rises as part of the Bank’s mandate to keep inflation stable once a deal has been agreed between the UK and EU.”

He said that a Brexit deal would likely be accompanied by quarter-point interest rate rises in May and November of next year.

While the average house price in England grew by 2.7% in October, they rose in Wales by 3.8% over the previous 12 months to reach £161,000. In Scotland, the average price rose by 4.4% to stand at £152,000. The average house price in Northern Ireland currently stands at £135,000, an increase of 4.8% over the year.

Howard Archer, chief economic adviser to the EY Item Club, said: “The fundamentals for house buyers currently remain challenging. Consumers have faced an extended serious squeeze on purchasing power, which is only gradually easing.

“Additionally, housing market activity remains hampered by relatively fragile consumer confidence and limited willingness to engage in major transactions.”

But he said a no-deal Brexit was unlikely to bring about a slump while the number of homes for sale remained relatively low.

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