Tags: UK | Economic | Recovery

Falling House Prices, Slowing Retail Sales Stoke Fears About UK Economic Recovery

Tuesday, 10 Aug 2010 09:41 AM

Falling house prices and slowing retail spending are stoking fears that Britain's recovery from a deep recession is losing momentum, although the bad news was tempered by an improvement in the country's trade deficit.

Many analysts are concerned that massive public sector spending cuts planned by Britain's Conservative-led coalition government, which it argues are necessary to get the huge budget deficit under control, are undermining consumer confidence.

A report from the Royal Institution of Chartered Surveyors out Tuesday showed its first negative reading on house prices in a year despite a rise in the number of properties for sale as buyers became more wary of the market.

The group's house price balance — the percentage of members reporting a fall compared to those reporting a rise — fell to minus 8 percent in the three months to July, from a positive 8 percent in the three months to June. It was the first time since July 2009 that the survey has found an overall decline.

A separate report from the British Retail Consortium showed that retail sales grew just 0.5 percent in July compared to a year earlier, down from a 1.2 percent hike in June and the smallest rise since April.

The group said non-food items such as homewares and furniture were the worst affected as wary consumers focused on essential purchases.

"Talk of public spending cuts is unsettling customers and they are concentrating on essentials," said the consortium's director-general, Stephen Robertson. "It's clear the recovery continues to need support."

Ian Perry, a spokesman for the Royal Institution of Chartered Surveyors, said the recent housing data "suggest that this softer trend will continue through the second half of the year."

Britain's economy grew by 0.3 percent in the first quarter of the year, extending a shaky recovery for the second three months, but the outlook is uncertain.

The Bank of England is expected to downgrade forecasts for GDP for 2011 and 2012 when it unveils its latest growth and inflation forecasts on Wednesday.

The Conservatives won power in May at the head of a coalition government on a platform that included slashing Britain's heavy budget deficit, which is running at close to 12 percent of gross domestic product, and debt levels. But headlines in recent weeks suggesting widespread public sector job losses have caused alarm.

Analysts suggest that as bank lending remains constricted, despite Britain's major banks reporting a return to profits in the second half of the year, there is doubt that the private sector could step into the breach.

Countering some of the negativity, the Office for National Statistics revealed that Britain's trade deficit with the rest of the world narrowed to a four-month low in June after a rise in exports -- providing encouragement that trade can make a strong contribution to the domestic recovery.

The total trade deficit narrowed to 3.3 billion pounds in June from a 22-month high of 3.8 billion pounds in May, as exports of goods and services rose by 2.6 percent, outstripping import growth of 0.9 percent.

"One swallow does not make a summer, but the hope must be that U.K. exporters are finally starting to benefit from sterling's weakness and that this will help prop up growth over the coming months," said IHS Global Insight economist Howard Archer.

However, Archer and other economists warn that exports could be hit in coming months by slowing global growth and a tepid recovery across the eurozone.

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Falling house prices and slowing retail spending are stoking fears that Britain's recovery from a deep recession is losing momentum, although the bad news was tempered by an improvement in the country's trade deficit. Many analysts are concerned that massive public sector...
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2010-41-10
Tuesday, 10 Aug 2010 09:41 AM
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