Member Article

UK house prices reach new high as housing market strengthens around country

UK inflation was unchanged in September compared to August, according to data released by the Office for National Statistics (ONS) today. Annual growth on the consumer price index stood at 2.7%, a level around which it has fluctuated only marginally since October 2012. Inflation stood above the Bank of England’s 2.0% target rate for the 46th consecutive month.

Contributions to changes in the headline rate were comparatively small in September, with upward pressure from air fares being offset by petrol and diesel prices, which declined by 0.2% between August and September 2013 compared to a 2.7% monthly increase at the same point in 2012.

Despite this month’s lack of movement in consumer price inflation, we expect the rate to start coming down from October. The effect of last year’s increase in the price of undergraduate university education will drop out of the annual comparison in October - an effect that contributed 0.3 percentage points to the uptick seen last year.

In addition, a cooling of global commodity prices is expected to bring the inflation rate back closer to the Bank of England’s target rate into 2014 - although with wage growth remaining historically weak, further real income erosions are likely.

Data on UK house prices were also released today and showed further signs of a housing market recovery. The average home cost 3.8% more in August 2013 than a year before, up from annual growth of 3.3% in July .

This is the fastest growth rate seen since October 2010 and this latest upward movement takes the average UK house price to its highest on record. There are also indications that housing market strength is now returning around the UK as average prices outside London and the South East rose year on year by 2.1%, again the fastest growth since October 2010.

Average house prices in every region and country of Great Britain saw an increase in annual growth in August, apart from in London and the South East, which actually experienced a marginal slowdown. Northern Ireland also saw growth fall back.

These latest figures, combined with Bank of England data that show the number of mortgage approvals increased year on year in August by 31%, highlight the strengthening housing market - a trend that is likely to help boost consumer confidence.

However, activity in the market still remains well below the long run average - there were 62,000 mortgage approval in August compared to roughly 100,000 a month over 1993-2007. We will have to wait a bit longer to definitively see if the newly-extended Help to Buy scheme is successful at further boosting the market.

This was posted in Bdaily's Members' News section by Cara J. Stewart .