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UK house prices slide, factory output shrinks
Published in The Saudi Gazette on 10 - 09 - 2008

Britain is edging closer to recession with data on Tuesday showing sales down, house prices crumbling, factory output falling for a fifth month and firms more reluctant to hire than at any time in almost 15 years.
Retail sales fell for a third month in August as wet weather kept people out of the shops, according to the British Retail Consortium. Another industry survey showed house prices fell again in the three months to August with the average number of home sales per surveyor hitting a record low.
Factory output fell 0.2 percent on the month in July, marking the longest stretch of monthly declines in seven years for British manufacturing as falling house prices and high food and fuel costs force consumers to cut back on other spending.
The data knocked sterling to session lows of $1.7507 and 80.50 pence a euro and briefly boosted December interest rate futures as investors weighed the chances of a Bank of England rate cut this year.
The central bank held interest rates at 5 percent last week for the fifth month running but expectations are growing that a sharply slowing economy could persuade it to cut rates once inflation peaks in the next couple of months.
“July's industrial production figures showed that the manufacturing sector is all but in recession, while August's BRC Retail Sales Monitor suggested that the consumer sector is not that far behind,” said Paul Dales of Capital Economics. “We continue to think that the economy as a whole will contract by around 0.2 percent next year.”
The UK economy stopped growing in the April-June period, its weakest performance since the recession of the early 1990s.
The Royal Institution of Chartered Surveyors said its house price survey balance improved slightly to -81 in August from -83 but still shows a weak picture for the housing market, which is now slumping after a decade-long boom.
The poor outlook was reinforced by figures from housebuilder Redrow Plc, whose annual profits almost halved in the year to end-June compared with the previous year.
The latest figures paint a grim backdrop for finance minister Alistair Darling's speech to the annual trade union conference in Brighton later on Tuesday.
Public sector unions are already angry over what they see as meager pay rises that do not match the jump in the cost of living caused by soaring food and fuel prices.
But Darling will tell them he is not prepared to take “unnecessary risks with economic stability” - a signal that public sector wage rises will continue to be kept tight.
BoE policymakers have been worried by the prospect of high inflation - currently running at more than double the central bank's target - pushing up pay demands and feeding a wage-price inflationary spiral. But there has so far been little sign of this happening and a survey by Manpower on Tuesday showed firms at their most reluctant to hire staff in 15 years.
BoE policymaker David Blanchflower told Reuters last month that the jobless total could rise by another 300,000 to 2 million by Christmas.
Higher prices and a worsening job outlook is hurting consumers who are already feeling gloomy about the slide in house prices - two-thirds of British households own their homes.
“We expect to see a deepening of the current growing trend of consumers looking to economise,” said Howard Archer, economist at Global Insight.


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