UK house price falls are accelerating

Nationwide Building Society released its monthly house price index for the UK showing an annual rate of decline of 8.1%, the highest since UK house prices began falling last year. This suggests that UK house prices are accelerating through their first year much as they did in the U.S. earlier. Regarding the UK economy, Nationwide Chief Economist Fionnuala Earley said:

“The latest batch of economic data has been fairly poor. GDP estimates for the second quarter show a slowing in each of the main economic sectors. Retail sales collapsed in June, reversing May’s surprisingly strong outturn, and confirming the view that consumers are tightening their belts in the current climate. Inflation remains well above target and is expected to continue to rise this year and the labour market is also showing signs of deteriorating. The claimant count measure of unemployment increased for the fifth consecutive month in June to 840,000. Although it is 2.7% lower than this time last year, the Bank of England Agents’ Report shows a fall in employers’ employment intentions, which would suggest that the situation is unlikely to improve in the coming months. The risk of an economic recession in the UK is now clearly rising.

“Continued mild wage growth and the sharp fall in retail sales in June will give the MPC some comfort, as will the slide in oil prices in the last week. But, the impact of the sharp rises in food prices and further news of rises in gas and electricity prices have the double edged effect of pushing up inflation while at the same time slowing the economy as disposable incomes are squeezed. In our view the latter effect will begin to dominate, eventually giving the MPC enough comfort to begin cutting rates.
–Nationwide, 31 Jul 2008 (pdf)

The MPC has already signalled that they are not cutting rates. I see no reason to speculate about that. If anything the BoE is poised to RAISE rates at it’s next scheduled meeting. All of this means that UK house prices have much further to fall.